Total Money Makeover

I just finished listening to Dave Ramsey's "The Total Money Makeover". I must say that, in spite of his brash and brazen way of presenting the information, I am quite enthusiastic about doing some of the things that he proposes. He seems very much in line with others I have read regarding what to not do but he also lays out the steps to take in order to get yourself out of debt, to build a security nest egg, to build wealth and then to maintain that process.

Despite my age I figure that I can do this and have some wealth to live on as well as to pass on to others. So I am developing a plan.

He talks about a show he watched where they were showing a herd of gazelle that are calmly grazing. But, as you already know, no one watches a heard of gazelle grazing. That is boring. Then the focus moves to a cheetah hiding in the tall grasses of Africa. Then the wind changes a little and one gazelle's head comes up. He is on alert. Then the other heads come up. They don't know where the danger is but they know it is out there. They don't dare run for for fear of running into the danger so they stand alert. The cheetah is the fastest animal on land accelerating to 45 mph in just four leaps. When he moves the gazelle yells "CHEETAH!" Not really, but they run with extreme intensity. They know that they cannot outrun the cheetah so they run to out maneuver the cheetah. Because he runs so fast he cannot make turns as fast as the gazelle can and statistically, Mr. Cheetah only takes a gazelle to lunch in 1 out of 19 attempts.

In our pursuit of removing debt we need to be "gazelle intense", as Dave Ramsey puts it. We have to run from debt as if our lives depended upon it. Once debt is under control then you focus on removing it. Finally it is time to refocus our monetary efforts on building weath that will allow us the freedom to enjoy life.

We often believe that having a home is the American dream, or that having lots of "stuff" is the American dream. But so often the true dream eludes us. The true American dream is freedom. And one of the freedoms is monetary freedom. The freedom to know that whatever happens that we will have no worries. It does not matter who is in office, how they "tax the wealthy", how the market is doing. If your car catches fire, your house needs a new roof or medical emergencies come up, these are minor inconveniences because you have an emergency fund, appropriate insurance and investments that allow all to be taken in stride.

So, here are the steps, according to Dave, to becoming wealthy:

• Make a budget

1. If you don't know where your money is going you won't know what things that you want to trim or need to trim to accomplish your goals.
2. If you don't control your money it will control you then vanish.
3. Your money should be a wash every month, paying agreed upon expenses and the remainer, down to the last penny, being funneled into your financial goals which follow.

• Build an emergency fund of $1000

1. This is the first step because if you do not have an emergency fund every minor inconvenience will be an interruption to your plan.
   
2. Immediately after you start to do this saving you will have a test to see how focused you are on your decision to do a total money make over. Without your fund you will put something on "the card" and become discouraged.
3. Stay gazelle intense - your life depends on changing your habits regarding money.

• Start the snowball rolling

1. Pay the minimum on all of your debts
2. On your debt with the fewest remaining payments, focus all of the money you can scrape together each month to to add to the minimum to get this paid off as fast as possible.
3. When you get the first debt paid off, focus the money you were paying on the first debt plus any money that you can possibly spare each month on paying off the next debt.
4. Continue this until everything but your mortgage is paid down to nothing.
5. Have a card-ectomy - now cut up all of the plastic because you are on your way to never needing them again.

• Next build your nest egg

1. It is important to grow beyond the $1000 emergency fund.
2. Depending upon the security of your job, save between three- and six-months of what it would take for you to survive without any income. Now that you have no bills except your mortgage you will be able to survive on much less.
3. This should be saved in a form that is easily converted to ready cash. Do not put it into stocks or long-term investments which may be at a low when you need it or may take time to get into a liquid format.
4. With gazelle intensity, put all of your resources toward doing this as quickly as possible.

• Start long-term investments

1. If you get matching dollars thorough your work, max that out.
2. Invest in long-term index funds as a secure place for long-term investing.
3. Invest remaining money in a Roth IRA.
4. You should invest NO LESS than 15% of your gross income each month at this point.

• Start paying ahead on your mortgage

1. Now that you have your investing started, no credit debt and your emergency funds in place, focus your total spare monies on paying ahead on your morgage. This is the biggest challenge so far but you are now practiced at being gazelle intense with your money.
2. Continue with this step until you have paid off the mortgage. This will take some time (on avarage, as little as $125 extra each month will bring your mortgage from 30 years down to 15 years and save you about $85,000) but this will bring you to a point of financial stability beyond 92% of people in this country.
3. More money brings it down faster and saves you more money.
4. When you pay off the final payment, have a mortgage burning party.

• Now that you have no debt, do not back off. How fast do you want to become free? When you have sufficient wealth in investments that you could live comfortably on 8% then you are there. Statistically, over the long haul, stocks and bonds make 12% per year. Considering times when the market will not do that well, 8% will allow you to live without the fear of the market dropping a bit.

1. All additional funds at this point should be placed into a Roth IRA so that you have no tax liability when you begin withdrawing from your investments.

That is the basics. I recommend that you read or listen to his book. There are more details that are worth gleaning from his writing.