Total money makeover report


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Total money makeover report

  1. 1. Lauren HardmanPersonal Finance 1050November 27, 2010 Reflective Writing on “The Total Money Makeover” My husband and I began reading The Total Money Makeover in June of this year. Wewere drowning in debt and needed a solution. Fortunately we were in a position at that time togrow our income at a rapid pace in a rather short amount of time. When we were married justat the beginning of the year, our debts were combined and I then assumed partial responsibilityof our financial situation. I was very oblivious at first because my share of debt was ratherminimal but it wasn’t long until I saw the big picture and realized we could not live the way wewere living. The month of May arrived and we were off to do the summer sales thing. This jobopportunity has been one of our greatest blessings yet. Once the paychecks began coming,Dave Ramsey’s book became our best friend. I am excited to discuss and reflect on the wordswhich Dave Ramsey has so thoughtfully placed between the covers of this book. Before chapter 1 begins, Dave Ramsey explains that his book is neither sophisticated norcomplicated. We found this to be true as we began reading along. Given that we were alreadyfeeling downtrodden about our financial situation, Dave Ramsey did very well by providingseveral dozens of laughing opportunities through his bold, no nonsense, yet humorousapproach. I really appreciate the fact that he uses real life examples of families and coupleswho were once overloaded with debt, but regained financial peace. My husband and Icommitted to the challenge he issues to all people who are willing to gain financial freedom. Ina nutshell he says by following and implementing his suggestions, people will achieve morefinancial success than they ever thought possible.
  2. 2. One of my favorite truths he points out is the response to the myth, “I don’t have timeto work on a budget, retirement plan, or estate plan.” The truth is, “you don’t have time notto.” I absolutely love that. He spoke plainly to me that making your financial situation a priorityis vitally important. Luckily I grew up with and have always had regard to my current and futurefinancial decisions. Dave Ramsey in chapter 2 speaks about being aware of your current statuson the financial meter. Change is hard for a lot of people in regards to their current lifestyle butback in June, my husband and I were certainly not in denial any longer and were willing to dowhatever it took to not be enslaved by our debt. In chapter 3 I learned over a dozen financial myths and statistics. I actually grasped theconcept that having a car payment does not have to be “a way of life” or mean “you will alwayshave one.” People who are millionaires today did at some point drive a used, reliable car thatthey could afford. Some of the truths to the myths are no brainers but apparently millions ofpeople fall into the ensnared traps leading them down the path of financial misery. Along withthe myths, the statistics available in this book are also incredibly shocking. Knowing them hasforced me to avoid being included in the particular numbers. The next chapter discusses ignorance and keeping up with the Joneses. I personallyknow several people who feel compelled to keep up with having “stuff” their friends have orother family members have. It is unfortunate to get caught up in that mindset because most ofthe time the “Joneses” are not financially stable and have just as many financial problems asthe ones trying to keep up with them. I have learned that living within my means will provideme with the most peace of mind. When you are doing that, you are being real with yourself andgiving in to financial peer pressures is less likely to happen. Once I understood all the myths,
  3. 3. statistics, and that I had to live within my means, I was ready for the next step. The next step is to put $1,000 in savings. It may be rough at first, but it’s the first babystep in accomplishing financial freedom. This step is to eliminate feeling overwhelmed andfrustrated. Before stashing the $1,000, a written budget must come into the picture. Myhusband and I have done rather well with the written budget. Laying out the wants versesneeds was definitely a challenge. Dave’s quote is “you have to tell money what to do or itleaves.” SO TRUE! Planning out expenses WITH your spouse is the only way to win. After thewritten budget was set in place, the $1,000 emergency starter fund began giving me a greaterpeace of mind. The purpose of this emergency fund is to help people break the cycle of creditcard use. After my husband and I transferred this money to a savings account, I felt a bettersense of control over our financial situation. Taking these “baby steps” I felt confidentcontinuing on even though our debt was not completely eliminated. Once the budget andemergency fund are checked off, the debt snowball begins. Using the debt snowball technique, Dave instructs people to start with the smallest billand begin paying it off completely. After that bill is wiped out, the next one is tackled. Oncethat bill is tackled you move to the next and so on. At first we were a little leery about it, but weput our trust in Dave Ramsey and followed the plan. My husband’s summer sales job allowed usto complete the debt snowball in just 5 short months. We had a total of $72,000 in credit carddebt, loans, and ROTC repayment to the army. As we began knocking one payment off afteranother, our minds and behaviors transformed. We realized we should only have things thatare a necessity and get rid of the things that weren’t. Overall we caught the vision of payingcash for things. Having the mindset of paying cash for everything truly eliminated lousy
  4. 4. purchases. Dave Ramsey said that 65% of people do not pay off their credit cards each month.After ridding the debts, “the Total Money Makeover in our hearts paves the way for a TotalMoney Makeover of [our] actual wealth”. I was completely blown away at this step and amforever thankful we followed through. Following baby step number 2, finishing the emergencyfund takes place. Baby step 3 is about adding to the emergency fund created at the beginning of themakeover. This fund consists of 6 months living expenses for when a rainy day comes along.This fund acts as an umbrella because we cannot control when the rainy day comes. Myhusband and I have not mastered this step just yet but I totally believe in it and will be excitedwhen the day comes that we have 6 months expenses saved up. Dave Ramsey emphasizes thatthis fund to be used only on emergencies and not on purchases that should have been savedand planned for in the first place. This chapter also discusses options when purchasing a home.Dave explains the time to purchase a home is AFTER the debt snowball is complete and the 6months emergency fund is sitting pretty in your bank account. He also suggests not goingbeyond a 15 year fixed rate mortgage. I am feeling confident that my husband and I will be inthis exact position when we decide to purchase our first home. When the mortgage is youronly payment it is now time to focus on investments. Investing 15% of your income in retirement is baby step 4. USA Today reported that outof 100 people age 65, 97 of them could not write a check for more than $600. 54 of those 100are still working and 3 are financially secure. Sounds pathetic to me! Dave suggests to invest15% of the gross income and to not include the company match. I do not have any experiencein investments but I am a firm believer in taking advantage of them. We are instructed to learn
  5. 5. more about investing and which investment options are available. Most people do not investbecause they are uneducated about what they are getting into. Investing builds wealth andwealth is a synonym for financial freedom. Along with investing, baby step 5 about college funding should take place. To play itsafe, the suggestion is saving 7% per year. Dave discusses what ESAs are and their benefits. AnESA is an Educational Savings Account that is funded in a growth-stock mutual fund. He alsorants about how many scholarships that are available which people do not take advantage of. Ihave firsthand experience with grants and scholarships. They are so worth seeking out! If you have faithfully completed the steps thus far in the total money makeover, it isnow time to pay off your home mortgage. Being in this financial position puts you at the top5-10% of Americans. This baby step 6 is extremely hard for some people because they are inthe mindset of settling for “The Good Enough.” This is a dangerous mindset according to Dave.He says many people who stop on this step of the challenge regret their decision completely.Having no mortgage only sets you up for greater wealth. People are led to believe they cannotpay cash for a house. Dave says, “Bet me!” Another pitfall to be aware of is “if your spouse getsa raise, don’t raise your lifestyle. Save more! Invest more!” The last baby step is building wealth. Wealth is considered a tremendous responsibility.It is very easy to get tangled up in debt, but coming out is a major challenge. Dave says he findsonly three good reasons for the use of money. It is good for fun, good to invest, and good togive. Money should only be used for these reasons at the appropriate times. When money isused for fun, it is necessary for you to be able to afford it. When placing your money ininvestments, you are continually winning. And last, when you are using your money to give, you
  6. 6. gain much reward. Dave says you cannot have Total Money Makeover Status until these threethings are done. “Good things will happen when people’s spiritual character realizes wealth isnot the answer to life’s questions.” I am forever grateful for this book and the opportunities it’s given my husband and I.Even though we are only on baby step 2, we feel more financial peace than we ever have. Ialways recommend this book to my close relatives and friends because I want them to havetheir financial burdens lifted as my husband and I have. I can only imagine what the futureholds if we continue on with the steps and make financial freedom a priority in our lives!