Personal Finance Must Reads: Total Money Makeover
Reading books on personal finances can be enlightening and greatly beneficial to your own personal financial habits. For those who are serious about bettering their finances, The Total Money Makeover is a must-read. This is the flagship book of the famous Dave Ramsey. In it, he lays out the 7 “Baby Steps” to financial stability.
Ramsey is often seen as a controversial figure because of his emphasis on debt-free living and his advisement to not have credit cards. This intriguing book is filled with stories who have had success through his plan. He assures readers that if they can follow the plan, they will be much happier with their own personal finances.
Here are the 7 Baby Steps that he lays out for financial stability:
Baby Step 1 – $1,000 to start an Emergency Fund
Having emergency money saved up is vital so that you can afford the curveballs that life unexpectedly throws your way.
Baby Step 2 – Pay off all debt (except the house)
Using his debt snowball plan, begin ridding your life of debt. Start with your smallest balances first, and then work in increasing order. Tackle one at a time.
Baby Step 3 – 3 to 6 months of expenses in savings
This step is a big part of financial stability. By saving up 3-6 months of living expenses you are protecting yourself from ever falling into debt again- even with a big set-back, like job loss.
Baby Step 4 – Invest 15% of household income into Roth IRAs and pre-tax retirement
Now that debt is paid off and you have a full emergency fund, it’s time to plan for retirement. Prepare for the future that you want. Invest about 15-20% of your income into whatever medium you find the best fit- 401(k), Roth IRA, or Traditional IRA.
Baby Step 5 – College funding for children
It is never too early to prepare for the future. Start saving now for your children’s educational expenses. Ramsey suggests using 5232 college savings funds or Coverdell ESAs (Education Savings Accounts) to save for their college. These are both tax-advantaged, and you can do research to determine which is more beneficial in your state.
Baby Step 6 – Pay off home early
Next, Ramsey suggests paying off your home as early as possible. Not only will you be debt-free and mortgage-free sooner, but you will also save thousands in interest. Don’t let this hang over your head any longer than necessary.
Baby Step 7 – Build wealth and give!
The final step of his plan is fun and exciting. First, build up as much wealth as you can. As you build that wealth, give, give, and give. Tithe. Share with charities. Build up an inheritance for your children. Create the legacy that you want to leave behind someday.
Finally, The Total Money Makeover is a personal finance classic. The book has sold millions of copies and has helped hundreds of thousands of people improve their finances. At $14.99 the book is totally inexpensive for the educational value, so definitely give it a read to learn more about his 7-step plan and to dig deeper into Ramsey’s advice for financial stability.
I just started my emergency fund and have a lot saved up already due to not buying clothes or coffee. It’s crazy how much can be spent on those 2 things alone!