The Total Money Makeover: Classic Edition

by Dave Ramsey

  Looking back, we were your typical American family: making good money, having lots of nice toys, and drowning in debt. We always told ourselves we deserved new cars and we needed a house so we could stop paying rent.

  A friend at work was talking about Dave Ramsey one day, and it intrigued me so I got his book, The Total Money Makeover, and we started reading. We got motivated because we heard the stories of people making much less than us but who were debt-free—a place we wanted to be.

  Establishing a budget was priority, but first we had to overcome the mind-set that we “needed” stuff to make us happy. We were able to pay off our debt without having to give up too much; instead, we redirected what we already had.

  The change has been amazing. My wife no longer feels guilty for spending money on much-needed clothes. I can relax when it comes to paying bills at the end of the month, knowing there’s still money in the checking account. It’s all worth it.

  We now talk about our finances instead of just fighting about money. We have been able to save for retirement and know that if anything happens to one of us, the other is taken care of and will not be burdened with debt.

  My wife and I have been debt-free since January of 2004, and life is so much easier now.

  Brian (age 36) and

  Tammy (age 33) McKinley

  Purchasing Agent for physician

  management organization; Agricultural

  Economist

  So maybe someday Sara and Bob will be able to pay cash to take Sara’s whole family on a cruise for Christmas. After their Total Money Makeover, Bob and Sara will be able to pay cash for a huge event like that and not even dent their wealth. They will be able to buy that cruise in memory of that fateful Thanksgiving when Sara’s heart had a Total Money Makeover in her need for her family’s approval. That change has taught Sara and Bob that if they will live like no one else, later they will be able to live like no one else.

  Past the Obstacle Course and Up the Mountain

  One thing I have learned as I have lost fat, become toned, and generally gotten into better shape is this: things that require physical output are easier for me. Things like mountain climbing or obstacle courses are actually doable now, not a dream as they were when I was overweight and out of shape. The same is true of our Total Money Makeover journey to fiscal fitness. Have you realized by now that the start of your Total Money Makeover is almost an obstacle course? We busted through denial. We waded through and climbed over Debt Myths. We carefully scaled the wall of Money Myths. We are working through Ignorance. And we have learned not to place so much emphasis on our competition on the course; we have permanently quit keeping up with the Joneses, because the Joneses are broke. The obstacle course, however, was only part of our journey.

  Now we stand at the bottom of a mountain with a clear view of the top. We are in better shape now for mountain climbing, and there are no blind spots. We are ready to climb. The goal is far off, but we can see it clearly now. There is a distinct and very clear path we will take to the top. The good thing about this path is that it is not virgin territory; it is a well-worn path. It is a narrow path, one that most people don’t follow, but many winners have. Tens of thousands have followed this path once they made it through the obstacle course.

  Take a look back before we start. The climb will be hard, but it will be near impossible if you are still struggling with any of the obstacles, if you are still hanging on to Myths, Denial, or any other obstacles. On this mountain climb you will feel as if you have bricks in your backpack. A couple of pounds of denial might not be fatal, but mixing it with three pounds of “I still think credit cards are good” and a can or two of “folding to peer pressure” will result in a backpack load that will ensure your climb is a failure. Most of us make the first climb wearing a hat of Ignorance, and while it will slow the climb, ignorance will not keep anyone from the top when mixed with some humility. This mountain is doable, but not if you are still bogged down on the obstacle course. Some things I’ll tell you to do won’t work and will cause damage if you still cling to Denial, Myths, Ignorance, or Approval.

  Decide before the climb if you are going to follow the guide. If you aren’t going to listen to the seasoned guide who has personally made this climb alone and then returned to lead tens of thousands up this path, then you climb at your own peril. Finish reading the book even if you don’t agree with me, but following these steps while trying to hold on to Myths, Ignorance, Approval, or Denial will make your climb very hard and may injure you.

  Why not climb? The only other path is to follow all the normal people who are broke. That isn’t a path; it is a well-beaten interstate highway. Most people drive around and around, occasionally glancing forlornly at the mountain we will climb, but when they see how tough the obstacle course is just to get to the bottom, those sad souls quit before they ever begin.

  The Twelve Steppers have it right. They say, “Continuing to do the same thing over and over again and expecting a different result is the definition of insanity.” What you have falsely believed and acted on or not acted on has brought you to the place you are today with your money. If you want to be in a different place, you must believe and do things differently. If I want a smaller waist size than fifty-two inches, I must eat and exercise differently. The change will be painful, but the result will be worth it.

  I’ve been to the top of Total Money Makeover Mountain, and I’ve led countless others there. I say, IT IS WORTH THE EFFORT! So lace up your shoes of resolve, wave good-bye to your “normal” friends, and let’s climb!

  6

  Save $1,000 Fast: Walk Before You Run

  In my first book, Financial Peace, there is a chapter entitled “Baby Steps,” the premise of which is that we can do anything financially if we do it one little step at a time. I have developed the Baby Steps over years of counseling one-on-one, in small-group discussions, with real-world lives in Financial Peace University, and by answering questions on our radio show. Tens of thousands have followed this tried-and-true system to achieve their Total Money Makeover. The term Baby Steps comes from the comedy What About Bob? starring Bill Murray. Bill plays a crazy guy who drives his psychiatrist crazy. The therapist has written a book called Baby Steps. The statement “You can get anywhere if you simply go one step at a time” is the framework for the movie. We will use the Baby Steps to walk through our Total Money Makeover. Why do the Baby Steps work? I thought you would never ask.

  Eating an Elephant Gives You Energy

  The way you eat an elephant is one bite at a time. Find something to do and do that with vigor until it is complete; then and only then do you move to the next step. If you try to do everything at once, you will fail. If you woke up this morning and realized you needed to lose one hundred pounds, build your cardiovascular system, and tone your muscles, what would you do? If on the first day of your new plan you quit eating, run three miles, and lift all the weight you can lift with every muscle group, you will collapse. If you don’t collapse the first day, wait forty-eight hours for the muscle groups to lock up and the cardio to go crazy, and you will be bingeing on food shortly thereafter. When I went on a quest for a better body and better health a few years ago, my wise trainer didn’t try to kill me the first day. Not even by the second week were we pushing the envelope, because he knew I had to create some muscle tone before we could hit hard workouts. We walked before we ran. Plus, if I had tried to do everything at once, I would have been overwhelmed and frustrated with my inability to do it all.

  The power of focus is what causes our Baby Steps to work. When you try to do everything at once, progress can be very slow. When you put 3 percent in your 401(k), $50 extra on the house payment, and $5 extra on the credit card, you dilute your efforts. Because you attack several areas at once, you don’t finish anything you start for a long time. That makes you feel that you aren’t accomplishing anything, which is very dangerous. If you feel that nothing is getting done, you will soon lose energy for the task of
money management altogether. The power of focus is that it works. Things happen. You check stuff off your list. Life gives you an “attaboy” in the form of actual visible progress.

  The power of priority also causes the Baby Steps to work. Each of these steps is part of the proven plan to financial fitness I promised you. They build on one another; therefore, if done out of order, they do not work. Think of a 350-pound person beginning marathon training with a quick ten-mile run. The results of not building up to that run could be total frustration at best and a heart attack at worst. So do the Baby Steps in order. Walk around the block and lose some weight before going on a ten-mile run.

  To start the Baby Steps, we will work on one important step to the exclusion of others. Patience! We will climb the whole mountain, but not until we first have a strong base camp. You will be tempted to short-circuit the process because you are more concerned about one certain area of your money, but don’t do it. These steps are the proven plan to financial fitness, and they are in the right order for everyone. For example, if you are fifty-five with no retirement, you may be tempted to jump to Step Four (Invest 15 Percent of Your Income in Retirement), because you are scared about not being able to retire with dignity. The paradox is that by shortcutting the process, you are much more likely to fail at retiring with dignity. Failure could also occur when you cash out your newly formed retirement plan to cover the inevitable emergency. If you have kids heading toward college, you may be panicking about saving for college, which is covered in Baby Step Five, but don’t do it out of order. I will address the problems you’ll run into at each stage if you get things out of order, because I have seen most of them. Focus exclusively on the Baby Step you are on, even though it seems to be a temporary detriment to other areas of money. Things will be fine if you don’t focus on retirement for a few months, as long as you can kick retirement into the stratosphere when we get there.

  YOU, Inc.

  This chapter is about the first Baby Step, but before we discuss saving $1,000 fast, we need to look at some basic tools needed to win and some ongoing things you should be doing as you go. The dreaded B word enters the picture here. You must set up a budget, a written budget, every month. This is a book about a process that will enable you to win with your money, a process that others have completed successfully, and I assure you that virtually none of the thousands of winners I have seen did so without a written budget.

  We were so motivated to start our Total Money Makeover when we finally realized that what we were doing wasn’t working. Every month there was more month than money, and all we would do is fight about it. We were sick and tired of being sick and tired!

  Budgeting was the best and the hardest part of the whole process. We needed to make sure we had our money going toward certain debts while cutting back on WANTS. It takes some effort every week and, for sure, discipline, and if we were good at either, we would have never been in this mess.

  Our biggest sacrifice has been having to wait. We wait on a lot of things now until we actually have the money. What a great idea! Christmas will be different this year. I think it will be a lot better because everything under the tree will be paid for, and we’ll actually enjoy it instead of regret it.

  The change is evident in so many areas of our life. We feel comfortable knowing that we will be able to save for our children’s college and we’re able to tithe consistently. And the funny thing is that we don’t miss the money.

  Living debt-free has been amazing. My wife and I communicate better, and we’re more loving to each other and the kids because we aren’t stressed out about money all of the time.

  Tony (age 36) and

  Tara (age 37) Kiger

  Small-Business Owner; Homemaker

  In chapter 4 on Money Myths, the importance of a written budget was discussed. If you worked for a company called YOU, Inc., and your job at YOU, Inc., was to manage money—and you managed money at YOU, Inc., the way you manage your own money now, would YOU, Inc., fire you? You have to tell money what to do or it leaves. A written budget for the month is your money goal. People who win at anything have written goals. Goals are what you are aiming at. Zig Ziglar says, “If you aim at nothing, you will hit it every time.” Money won’t behave unless you tame it. P. T. Barnum said, “Money is an excellent slave and a horrible master.” You wouldn’t build a house without a blueprint, so why do you spend your lifetime income of over $2 million without a blueprint? Jesus said, “Which of you, intending to build a tower, does not sit down first and count the cost, whether he has enough to finish it” (Luke 14:28 NKJV).

  There never seemed to be enough “bucks” to cover all our family’s expenses. I was panicked each month because we were barely squeaking by: paying our bills, funding extracurricular activities for our kids, paying for car repairs, etc. John was frustrated because his check was gone before he walked in the door. There was too little to go around, and we had huge differences in opinion regarding what to pay first. Thanks to a friend, I ended up reading The Total Money Makeover and realized our family’s financially peaceful future was just around the corner if we could get everyone onboard.

  Sure enough, after John read Dave’s book, he came to the same conclusions I had. We were so excited to be on the same page financially and start using our money wisely! We established a budget and got rid of our credit cards. We knew we had to work together to accomplish our goal, so we’ve spent a lot of time communicating with one another concerning how our spending can really enhance the lives of our family. A lot of couples forfeit working together on their budgets, and one always ends up pushing and nagging the other. It is so important to work with each other from the very beginning! It might seem boring, but we’ve turned our regular budget/calendar meetings into enjoyable, future-planning dates!

  It’s so nice not to have anxiety about money. We have been able to do so much more with our four kids and truly enjoy those special times with them. Also, we’re making plans to add a second floor to our house. Before starting Dave’s plan, I had a hard time dreaming with John about it because I thought it would never happen. Now I can see that second floor in our near future. Making a plan and sticking to it has made all the difference for the entire family. I can’t imagine living without a budget! The financial rewards are wonderful, but the peace of mind it has given John and me is even greater.

  Sarada (age 34) and

  John (age 37) Marsh

  Homemaker; Civil Engineer

  Brian Tracy, motivational speaker, says, “What does it take to succeed on a big scale? A tremendous God-given talent? Inherited wealth? A decade of postgraduate education? Connections? Fortunately for most of us, what it takes is something very simple and accessible: clear, written goals.” According to Brian Tracy, a study of Harvard graduates found that after two years, the 3 percent who had written goals achieved more financially than the other 97 percent combined!

  This is not a textbook on money; this is a book on the steps to take and how to take them. This isn’t a chapter on budgeting; however, many of our budget forms from the Financial Peace software program are in the back of this book for you to use. The instructions are on each page, but let me give you a couple of guidelines to get started on budgeting.

  Set up a new budget every month. Don’t try to have the perfect budget for the perfect month, because we never have those. Spend every dollar on paper before the month begins. Give every dollar of your income a name before the month begins, which is called a zero-based budget. Income minus outgo equals zero every month. Look at this month’s income and this month’s bills, savings, and debts, and match them up until you have given every income dollar an outgo name. If you have an irregular income due to commissions, self-employment, or bonuses, use the Irregular-Income Planning sheet (see pages 217–218) in the system to create a prioritized spending plan, but you still must do a written budget before each month begins.

  The financial mentality I grew up with said, “If you want anything out of life, you’
re going to have to get into debt for it!” And so I did. By the time I was in my mid-twenties, I had accumulated $3,000 in debt on a mobile home, $9,000 in debt on a car, approximately $1,000 on credit cards, and $50,000 on a newly purchased home. That’s a lot of debt to pay off on a salary of around $30,000 a year.

  It wasn’t until my cousin and her husband introduced me to Dave that I began to make the change in how I handled my money. They had attended Financial Peace University at a local church and decided to share the CDs with me. A few hours into the CDs, the light came on. I knew that I had to get ahold of my finances and start living life differently. I purchased Financial Peace and The Total Money Makeover and began listening online to Dave every weekday.

  My most important move in becoming financially free: budgeting. I nearly passed out when I realized how much I was spending on eating out! It took a few months to organize my funds and expenses, but now I’ve become a great budgeter! I give 10 percent of every paycheck, and I’m currently allotting 49 percent of my salary to paying off my house. But thanks to careful budgeting and spending, I’ll be able to assign 52 percent of my paycheck to the house at the turn of the year! Then I will be able to give more and help others find the peace that I have found.