Friday, February 3, 2012

Book Report - The Total Money Makeover

If you will live like no one else, later you can live like no one else" - Dave Ramsey

If you’ve spent any time with us, you’ll know that we are big fans of Dave Ramsey and his insight on financial matters. The whole team has read his books and attend courses and truly believe in how he is helping people eliminate debt and create a lifestyle that keeps you out of it. In the most recent Pierson Real Estate newsletter we shared the first three steps of Dave’s baby steps program which is found in his best-selling book Total Money Makeover. Below is a recap and the final four steps.  


Step One: Save $1,000 cash as a starter emergency fund
Accidents happen, cars break down and this fund with hopefully sustain and soften the blow when things don’t go your way. 


Step Two: Debt Snowball
This step is the one that most people have heard about when it comes to removing debt and includes four steps:
  1. List all of your consumer (non-mortgage) debts from lowest balance to highest balance.
  2. Pay the minimum payment on all debts except the one with the smallest balance.
  3. Pay everything you can on the smallest debt.
  4. When that debt is gone, do not change the monthly amount used to pay debts, but pay all you can toward the debt with the next-lowest balance.
Some people may say to pay the debt with the highest interest but Ramsey believes that it is about getting little victories and morale boost that follows to correct the issue of spending that got you into trouble in the beginning. 


Step three: Emergency fund (3-6 months)
The first $1,000 is just the beginning. Ramsey suggests three to six months of living expenses and states the best way to complete this is to continue to save the same amount you were paying on non-mortgage debt and place it in a savings account. 


Step Four: Invest 15% of income into retirement
With no credit debt and your only payment being your home, this is where you start to build wealth and Ramsey suggests investing 15% of your income into Roth IRA’s and pre-tax retirement accounts. 


Step Five: Save for college
Whether for you or your children start saving your money for college - an education is possible without loans! There are a variety of options when considering how to save but among the best ways according to Ramsey is Education Savings Accounts (ESA) or 529 plans. 


Step Six: Pay of your mortgage
After figuring out how much you need to save for retirement and for college, now it is time to start paying off your home utilizing any leftover funds. The goal is to create the same sort of momentum that you did during the debt snowball.


Step Seven: Build wealth and give
From leaving an inheritance to for future generations to financially supporting causes dear to you it is now time to give like never before. As Dave says, “ Hoarding money is not the way to wealth. Save for yourself, save for your family’s future, and be gracious enough to bless others. You can do all three at the same time.!”

No comments: