5 min read ⌚
A Proven Plan for Finance Fitness
Do you sometimes feel that, no matter what you do, your financial situation never improves? Well, Dave Ramsey has the solution for you. A simple plan of seven steps he likes to refer to as “The Total Money Makeover.”
About Dave Ramsey
He is the author of numerous bestsellers, such as “EntreLeadership,” “Financial Peace,” “More Than Enough,” and “Smart Money Smart Kids.”
See more at https://www.daveramsey.com/
“The Total Money Makeover Summary”
If you have a decent job, a car and a house, you’d probably think twice before casting a second look at a book like this.
Dave Ramsey says: do it at your own peril.
Because financial difficulties sometimes come step by step, sometimes suddenly. Either way – it’s better if you’re prepared for them in advance.
The absolute best way to do this is to avoid debt at all costs – and at all times! Ramsey says that about three fourths of the Forbes 400 companies believe that staying debt-free is the best way to becoming wealthy.
And if they can do it – why shouldn’t you?
After all, increasing wealth is nothing more than earning more than you spend constantly.
However, let’s just say, for the sake of the argument, that this advice arrives a bit late for you. Is there some way to turn your financial situation around?
Of course there is! Dave Ramsey calls it “The Total Money Makeover” Plan. And it’s as short as seven steps!
Step #1: Begin an emergency fund.
Ramsey is pretty illustrative: “Start with a little fund to catch the little things before beginning to dump the debt. It is like drinking a light protein shake to fortify your body so you can work out, which enables you to lose weight.” If your household income is greater than, say, $20,000, then your emergency fund – which is for emergencies only! – should be $1,000. (Aim for twice as little if you earn less than $20,000.)
Step #2: Start the debt snowball.
First, list all of your debts. And then, with a “gazelle focus,” start checking them one by one. But, don’t start with the big ones! The idea is to build a momentum by paying them one by one, with the smallest one first.
Step #3: Finish the emergency fund.
In about a year and a half or two, you should succeed in moving from step 3 to step 4. By now, excepting the mortgage, you should be free from debts, and with at least $1,000 in your emergency fund. Focus on improving that number. Don’t buy a house until you finish this step.
Step #4: Invest 15% of your income in mutual funds.
The emergency fund has to be liquid (i.e. you must be able to use it at all times). And it is only at step #4 that you are allowed to invest some of your money for retirement. And some means 15% of your income. The answer to “where?” is “mutual funds.” That’s what the intelligent investor would do, after all.
Step #5: Save for college.
As far as Dave Ramsey is concerned, if you should go into debt to get your kid to a private college, you can’t justify that decision with quality. It’d be better to get him or her into a state school. If you don’t want to do that – then save! But, apply for scholarships – even if you have the money.
Step #6: Pay off your home mortgage.
Finally! The biggest debt of all! Two things concerning paying it off. First of all, don’t take a longer mortgage. Because, if the law doesn’t force you, you won’t make the extra effort to pay the mortgage earlier. And secondly, when you do it – you’ll be among only 2 percent of all Americans.
Congratulations – it’s time for the cherry on the top!
Step #7: Build wealth!
Not much to say there, right? Except maybe a clarification when you’ll know that the time for Step #7 has come. Allow us to quote Ramsey: “When your money makes more than you do, you are officially wealthy.”
Key Lessons from “The Total Money Makeover PDF”
1. You Are Not Financially Secure
2. If You Haven’t Gone So Far – Don’t Go into Debt
3. Become Wealthy in Seven Steps
You Are Not Financially Secure
Whatever you’re thinking, unless you’re making millions, you’re probably not financially secure.
Because many things happen on a daily basis. In fact, “Money Magazine” has estimated that over a period of ten years, about 80 percent of Americans will experience a major problem. It can be a car accident, unexpected pregnancy, or the loss of a job.
If You Haven’t Gone So Far – Don’t Go into Debt
The best way to prepare yourself for the worst – is to never allow yourself to go into debt. Yes – that means credit card debt too.
In fact, according to the American Bankruptcy Institute, almost 70 percent of the people who file for bankruptcy do that due to credit card debt problems.
Become Wealthy in Seven Steps
No matter how horrible your financial situation is, there are seven simple steps to go from rags to riches. You just need some discipline and a determination to follow them through.
The seven steps are: begin a $1000 emergency fund; start paying off your debts from the smallest to the largest; build upon the emergency fund; start investing 15% of your income in mutual funds; save for college; pay off your mortgage; and, finally, become a millionaire!
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