I’ve seen the billboards, tuned in to the radio show and have slowly started to give Dave Ramsey a second chance. My friends that are on the ‘Dave Ramsey program’ all love it, and swear by it. So I borrowed a book from a friend, and just finished reading it cover to cover (a feat in itself for someone like me). The book was what I expected, nothing too terriblyTotal Money Makeover new or revolutionary (one of the reasons I decided to borrow it instead of purchase it). His mantra, ‘if you will live like no one else, later you can live like no one else’ is enumerated throughout the pages. Essentially, you need to 1) live on less than you make and 2) only buy things when you can afford them, which means paying cash for the entire amount. By doing both of those, you should also be steering clear of following the Joneses, who are broke and in deep debt.

I heard of John Cummuta before I did Dave. Their philosophies are nearly exactly the same, they even site the same examples. i.e. being so poor you have to eat pet food, and that Sears and Ford aren’t really in the retail business but in fact the lending business. They both profile the average millionaire and discuss how the Joneses are renting a lifestyle only able to cover the monthly payments. They were both once millionaires, lost it all and reclaimed their fortune.

Both Commuta and Ramsey suggest the following steps to get out of debt and stay out of debt!

  1. Face the facts and assess where you really stand. What are your monthly expenses? How much are you bringing in?
  2. Create and implement a budget, buy only with cash/debit.
  3. Save up for a mini-emergency fund of $1,000 (Commuta advises putting all extra income towards your debt repayments, and if an emergency comes up you have the ‘accelerator margin’ available for that month should you need to use it)
  4. Pay off all debts (except mortgage) with your Debt Snowball/Accelerator Margin, any amount of money you have left over each month after you pay your expenses
  5. Build up a 6-8 month emergency fund of living expenses (had you tried to save an emergency fund first, you would need thousands of dollars more to be able to cover your minimum payments on all your debts)
  6. Invest for retirement. Contribute up to the company match on 401k plans then max out a Roth IRA (savings should be at least 15% of your income)
  7. Save for College with an ESA
  8. Pay off the mortgage. If you do purchase a home and have to borrow money, only do it with a 15-yr fixed rate. (If you can’t afford those payments then you can’t afford that size house, yet)
  9. Build up your wealth with further investing

I do agree with the majority of his teachings however, this book is more geared towards those with any emotional attachment to money. The most glaring, anti-savings, suggestion was to pay off your smallest balances first with complete disregard for the interest rate. He believes if you can start paying off small balances, you’ll start to feel better about your grim financial situation and stick with it. However, my brain would never allow me to willing make a decision that doesn’t make sound mathematical sense.

However, I did quite enjoy his little insets and humor bites throughout the book and I will share some of those here.

  • 90% of people in our culture buy things they can’t afford
  • Some people like to buy a new car for the warranty. If you lose $17,000 of value over 4 years (approx $4k a year) you have paid too much for a warranty. $17,000 could have completely rebuilt the car twice!
  • Debt Consolidation. Myth: Saves interest and you have one smaller payment. Truth: Is dangerous because you only treat the symptom
  • 80% of graduating college seniors have credit card debt before they even have a job.
  • 15 yr vs. 30 yr Mortgage. If you buy a $130,000 home, finance $110,000 at 7% you would pay a total of $283,520 after 30 years. A 15 yr mortgage would cost you just $197,840. For an extra $256 a month, you save $85,680.
  • Whole Life Insurance is a horrible product. Why would you pay someone interest on your own savings? That’s backward and it does not make you smart.
  • Over 97% of people don’t systematically pay extra on their mortgage
  • A new $28,000 car will lose about $17,000 of value in the first 4 years you own it. To get the same result, you could toss a $100 bill out the window once a week during your commute.
  • Retirement. Myth: I haven’t started saving yet but everything will be fine once I retire. Truth: Ed McMahon isn’t coming
  • 70% of Americans die without a will
  • The average student takes out student loans not to earn their degree but only to look good while doing it
  • 75% of airline miles ‘rewarded’ are never redeemed
  • Life Insurance. Cash-value policies run $100 per month. You could pay $7 a month toward term insurance and invest the remaining $93. But go with a cash value if you’d rather have someone else earn interest on your investments
  • 49% of Americans could cover less than one month’s expenses if they lost their income
  • Most people carry a car note for their entire lives, paying about $378 a month. That same amount invested from age 25 to retirement would, on average, amount to more than $4 million by age 65
  • 60% don’t pay of their credit cards every month
  • If you buy a $25,000 double-wide home, in 5 years you will owe $22,000 on a trailer worth $8,000.
  • If your mortgage payment is $900 and the interest is $830, you will pay that year around $10,000 in interest. What a great tax deduction! Right? Otherwise, you’d pay $3,000 in taxes on that $10,000. But who in their right mind would choose to trade $10,000 to save $3,000?
  • If you get a big tax refund, you’ve just allowed the government to use your money interest free for one year
  • Cosigning Loans. Myth: I am helping a friend or relative by signing. Truth: Be ready to repay the loan, the bank wanted a cosigner for a reason
  • More than $4 billion worth of non-academic or non-athletic scholarships are unclaimed every year.