The Total Money Makeover: A Proven Plan for Financial Fitness

"The Total Money Makeover" by Dave Ramsey, is the 3rd Edition of his popular book outlining personal finance advice and his "Baby Steps" method of righting your financial ship. I'm assuming that if you actively searched here under his name, you already know who Ramsey is - he and Suze Orman are probably the two most prominent personal-finance show hosts in the US. They have somewhat different styles - both can be pretty blunt to their callers when needed, but Ramsey tends to lean toward advising people to take more-drastic measures to get their debt down (`beans and rice, rice and beans' and his mantra of `Live like no one else, so you can someday Live like no one else') as opposed to Orman's "People first, then money, then things". She's a bit more empathic, but maybe he's a bit more hard-line because, at least from what I've seen (and I've watched both for several years), his audience generally seems to get themselves into bigger financial messes in the first place. If you think you've got it bad, tune into his show (on Fox Business Channel on cable) and you'll hear some REALLY bad stories of situations people have gotten themselves into, that will probably make you feel better about your own finances. Many of the `true stories' contained in the book are of people who got themselves in trouble by: 1) getting married/divorced too young, to/from someone who was as equally inept at handling money; 2) having lots of kids at a very early age (they're expensive, big surprise); and 3) appearing to have no education beyond high school, or majoring in something that is unlikely to yield a living income.

That said, the Ramsey book is a somewhat easy read - it runs around 250 pages, but the print is actually larger than I'd have expected, and the language is pretty colloquial, so it reads pretty quickly and is easy for even the financial newbie to grasp (I read it in around 4 or 5 sittings). The book is a codification of a lot of the advice you'll hear on his show on an ongoing basis if you watch regularly. His strong points are that he's no-nonsense in cutting to the bottom line, and debunking commonly-held `myths' of personal finance. If you're a loyal, diligent watcher of the show, though, this book may be redundant if you've been paying close attention, but for new initiates, it's an informative, if limited-in-scope, read that might provide a jumping off point for further reading. If you're totally behind the 8-ball financially, though, by all means get and read the book, because you've got to start somewhere, but if you've got your act together, and are facing more-advanced issues (such as trusts, estate planning, elder care issues, etc), then really you'd be better off reading Orman's books, which are more substantial and confront the more esoteric/complicated issues of personal finance. I've noticed from watching both, that Ramsey seems to specialize in getting people `back to zero and then on the right path' when they've really dug themselves into a hole (i.e. to get out of debt in the first place) - his advice is basically pretty on-the-mark and keeps it simple (if you're not averse to Bible verses sprinkled in there). I am an accountant, and while I can't say I agree with everything he says (he seems a little TOO wrapped up in the `pay cash for everything' mindset, to the point where I think he's not being realistic about effective ways to use credit in today's world, but I also think his recommendation of a 6-month emergency fund is not enough, given today's rotten economy - you really need 9 mos to a year), the bulk of the info he provides is pretty good (such as the "Debt Snowball" method of attacking your debt), if you can do the most important thing in following it: you need to impose self-discipline to break bad-spending habits. His methods require almost crash-financial-diet measures (such as taking on extra jobs, ceasing any and all unnecessary spending to the point of maybe not having much fun, selling your possessions, etc.), but if you can stick to it, it will probably yield results. There are some simple-to-use worksheets in the book, which you can copy and fill out, to start getting the lay of your finances and create a plan to address problems.

I DO have to say, though, that there were at least two ideas in the book that I heartily disagree with, to the point where I think they're maybe outright bad advice: 1) he says that if you're paying down your debt, you should stop contributing to your 401k plan altogether, even if you're being matched 100% up to a certain amount, in the interest of the psychology of paying the debt - this is questionable advice, because the match is free money that probably works out to an earnings rate far in excess of your interest rates on your debt - on the other hand, if you have oppressive debt, you might be better off paying the debt off, so you need to work the math in `real dollars' on that before you leap; and 2) on pgs. 39-40, he basically dismisses the `worth' of a good FICO score (saying it's an "I Love Debt Score"), and says that ideally you should have NO score - that sounds good on paper, but it's simply not workable in real life, as no bank will loan you money without one, for any purpose - and his entire philosophy is predicated on paying cash for everything, which is much easier said than done (unless you get a 15 year mortgage, which he recommends, but surprise - you'll need a high FICO AND down payment for that). Contrary to what he'd have you believe, it IS possible to have a very high FICO without incurring tons of debt. The FICO stance is where Ramsey and Orman diverge markedly (she preaches the virtues of having a high score, earned by prudent use of credit). And i won't even get into the fact that many prospective employers today WILL check your credit score before offering you a job, and jobs aren't easy to get nowadays in this economy. Nuff said.....

So, in my opinion: if you're REALLY in a hole financially and need to right the ship, then get one of Ramsey's books (this one is a good start); if you've got your act together, and have succeeded in getting out of dire financial straits, check out Suze Orman's books.

This is a good book to read if you want to get out of debt. It does provide some helpful hints and tips for getting debt free. Further, it points you in the right direction for living a debt free life.

That said, if you are already living a debt free life and you pay off your credit cards every month (the book states that 60% of Americans do not), then you probably already know much of what is stated in this book. This book is for those who haven't thought much about their personal finances yet.

First of all, I appreciated Ramsey's criticisms of Americans' addiction to debt and self-enslavement for various lifestyle obsessions (fancy new cars, big houses and general bling-bling that are purchased on credit). In that sense, the book offers a lot of great advice, the primacy of self-denial being among the best.

However, there are two embarrassing miscalculations offered by Ramsey. The worst of these is his continual reliance upon past market returns. He repeatedly asserts that investors can earn a 12% annual compounded return on their investments over the course of an investing career. He bases this 12% on the S&P's aggregate return since it began to be tracked. This seems reasonable enough except for the fact that any and every reputable investment house and stock statement repeatedly states the truism: "Past performance is no guaranty of future results." Yes, over the last 80 years, the general equity market has yielded around 12%, but the fact is that present and future investors cannot bank on this to continue. It may, but it is simply not guaranteed. For example, over the last 10 years, the S&P has yielded around a NEGATIVE 0.5%. This means that if you had invested 100k ten years ago, you would only have $95,111.00 today, but according to Ramsey's figures, that 100k would now be worth $310,584.00. In this book, Ramsey cites story after story where individuals have their savings locked down and (based on Ramsey's 12%) they fully expect to retire with millions and millions dollars in hand. Um, prepare for disappointment. This 12% is NOT a sure thing, but Ramsey never lets on to the possibility of anything less. Eep!

Secondly, Ramsey mocks those who play the credit-building game of having a few open credit accounts and those who faithfully pay them off every month in order to build their credit (FICO) score. He seems to think this is a loser's gambit that is totally frivolous. To be fair, many people do not manage their credit well, and pure motives can indeed backfire and lead to copious amounts of debt. Nevertheless, the fact is that a good credit score will not only save you THOUSANDS (if not tens of thousands) of dollars over the duration of a home loan (be it a 15 or 30 year mortgage), but it will also save you a bundle on auto insurance, home-owners or renter's insurance and in some cases, even health insurance. The companies who provide these services have heavily invested in risk calculations for consumer insurance premiums, and there is a strong correlation between credit scores and insurance claims. This is all about responsibility. If people are responsible with their credit scores, they are likely to file less insurance claims and have fewer accidents, which means that they will also be charged lower premiums. Do we HAVE to have a credit score to be insured? Not likely, but maybe depending on your carrier (like Nationwide), but having no credit score when it comes time for insurance is as bad as having a terrible one from the agencies' perspectives. Ramsey doesn't mention any of this, preferring instead to poke-fun at credit score building and those who work hard at it. Strike 2.

Taken together, each of these issues (the elusive 12% compounded returns and staunch avoidance of building a FICO score) are embarrassing for an author who should know better. However, other than these glaring problems, the book can be helpful and motivating when it comes to getting one's finances in order. Given the ability to read the whole book relatively quickly, it is worthy of our attention and 3 stars. Just take some of the advice with a grain of salt.

Thanks for reading, America!
-C. Lambeth

As the author says, the advice in this book is not ground-breaking, and it's not a get-rich-quick plan. The core of the plan is self-control. Stop buying things you can't afford to pay cash for. Start with a small $1000 emergency fund. Then pay off all debts aside from your mortgage. Then grow your emergency fund to be 3-6 months of expenses. Then fully fund your retirement and your kid's college savings. Then pay off your house. When you are truly debt free, you can have some fun as long as you maintain your healthy money habits of paying cash only and saving for the future. The book is very easy to read, has lots of inspiring personal stories, and is good general advice for almost everybody.

I have heard a lot of people talk about Dave Ramsey and have listened to his radio show a bit, but reading this book was my first real exposure to his financial advice. My basic observation about this book is that it would mostly appeal to people who have serious financial problems (read:massive debt) already or realize they have insufficient understanding of money issues to guide them forward. If you are someone who takes a "commonsense" approach to your finances (keep debt under control, don't live beyond your means, etc.) I doubt you'll find much here you didn't already know. Ramsey's approach is no nonsense (he recommends using cash only and always and thinks all debt is bad, bad,bad) and his tone is folksy (using terms like The Debt Snowball and Baby Step 1,2,3 etc.), but if you need simple advice to get out of a bad financial jam, I can see where this book might be a lifeline. The book supplies budget charts, investment advice, and lots of personal testimonies of people who have used his approaches to get on solid financial footing. Ramsey is a Christian who uses Biblical quotes and principles, but he uses them sparingly enough that I don't find him "preachy" (though if you have a big problem with applying Biblical principles in your life, you may need to avoid Ramsey altogether). All-in-all I give this book a lukewarm recommendation as it really only addresses those with serious money issues and may not be interesting or useful to others who wonder what Ramsey thinks but are doing pretty well with their money themselves.