# 5 Lessons From Dave Ramsey

Yesterday I finished reading “Dave Ramsey’s Complete Guide to Money” and a few days before that I read his well known “The Total Money Make Over.” This post is about 5 helpful lessons I found in those books.

First of all the books were very common sense. Dave did not come across as revolutionary or even innovative. Rather he came across as very practical in both books. One thing I didn’t like is that there was tons of repetition. Maybe that’s good for some people idk.

I would recommend that everyone skip “The Total Money Makeover” and go strait for the other book because I don’t recall anything from the first book not covered in the second in a more condensed form. “The book” from now on will reference “Dave Ramsey’s Complete Guide to Money.” The book is pretty good for three reasons imho:

1) Contains concepts that work in theory but that have also been validated by many real cases. Ramsey himself has also lived these concepts.
2) Concepts are easy to understand and non-technical.
3) Concepts are straightforward and simple to implement, though not easy per se, as in exercise.

His main strategy for finance is called “The Total Money Makeover” and is a general finance strategy consisting of 7 “Baby Steps.” Dave claims that his average family who has followed the process will pay off their mortgage, essentially marking the end of the process, about 7 years after starting (P. 200, “The Total Money Makeover” 3rd ed.) The concepts he outlines are therefore meant to be long-term life changes.

Dave Ramsey’s “Baby Steps” for a Total Money Makeover (P. 7, “Dave Ramsey’s Complete Guide to Money”):

1 – Build a $1,000 small emergency fund ($500 if income is less than $20,000 per year.) 2 – Pay of all debt (except mortgage) using the “debt snowball” 3 – Build a full size emergency fund worth 3-6 months of expenses 4 – Invest 15 percent of household income into Roth IRAs and pretax retirement plans 5 – Begin college funding for kids 6 – Pay off home 7 – Continue to build wealth, giving and enjoying it at higher levels So it’s pretty common sense and can be shortened further into a 4 step process: 1 – Build an emergency fund 2 – Pay off debt 3 – Invest 4 – Continue to build wealth, giving and enjoying it at higher levels In other words get out of debt and start saving. Pretty common sense stuff and not very innovative, but nonetheless tried, true and effective. His specific practical rules though are what’s useful. The good information in his book I would break into 5 lessons. Allow me to give the super-quick version of what each of these mean or include. 1 – The Envelope System is his system of budgeting. Every week you are supposed to sit down and do a budget. The difference in his system is that he wants you to take all of the money you have budgeted for different things and take that actual cash and put it in a physical envelope labeled for that purpose. He feels that the pain of the use of physical cash makes saving easier then when we are able to just “charge it.” If you run out of cash in a certain envelope you are also more aware of how you are spending and where to cut back spending or plan ahead by budgeting more. 2 – The “Debt Snowball” is his technique of saving after you have saved up a small emergency fund. Basically the amount of money you have saved over the small emergency fund is used to pay off debt, starting with the highest interest, which is usually credit cards. If you get in an emergency, instead of charging it to a credit card or taking a small loan to fix the problem you are supposed to dip into the emergency fund. Then rebuild the fund before you continue to pay off debt. In this way your emergency fund acts as a substitute for your credit card. Eventually you pay off all of your debt and never take loans again. Not ever. 3 – Social Help in Finance. I didn’t pay much attention when he started talking about this stuff because I don’t have these kinds of problems really, but Dave devoted tons of time to analyzing how married couples or parents and children and such can work out their money problems. Of course if one person is committed to improving the financial outlook of the family but no one else cares then it becomes very hard and/or impossible. So he goes through all of these social issues and gives advice on how to solve those problems whatever they may be. 4 – No Debt Ever. He talked about how FICO scores are just “I love debt” scores and pointed out ways to basically live life without credit cards or even a credit score at all. He showed ways to buy a house without a credit score and at a bargain. He basically makes the case that almost all of America’s financial woes are integrally linked to credit and he also makes moral arguments against either issuing or taking on credit or debt. 5 – Tips, tricks, and common sense. He gives advice on how to bargain and the kinds of people you can haggle with. He gives practical numbers such as “$1,000” for concepts such as emergency funds. He reminds us that cars lose 70% of their value in the first 4 years. He gives some introductory level investing and tax strategy and other small stuff like that.

In conclusion I would certainly recommend “Dave Ramsey’s Complete Guide to Money.” He’s also a pretty cool guy. Want proof? Here, have a Dave Ramsey:

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