Total Money Makeover by Dave Ramsey - Audio Book Disk3
I finished listening to the 3rd of the 3 CDs in the audio-book Total Money Makeover. Ramsey provides the details for the last 4 “Baby Steps” to getting control of your finances.
Step 4 has you beginning to fund your retirement. This step has you set aside 15 percent of household income to invest into Roth IRAs and pre-tax retirement accounts. If your employer has a retirement program set up that matches your contribution you should put in at least as much as they will match. The matching is a 100% return on your money. Then you need to fund your Roth IRA and your spouse’s Roth IRA if you are married. I do not remember if he gave any suggestions on what to do if you max out your Roth IRAs and have no other tax-advantaged savings plans available. It is something I have to look into for myself.
Now that you have no debt, have an emergency fund of at least 3 months salary set aside, and are putting away 15% of your income towards retirement, you can begin step 5, saving for your kids’ college education. If you don’t have kids, you can skip this step and go straight to step 6. From his comments it is obvious that Ramsey feels that Americans have gone overboard on college spending. He makes a point that a college degree only proves you have successfully passed certain tests. It will not ensure a job, ensure success, nor ensure wealth. As a matter of fact he calls student loans a ‘cancer’ and makes some valid points that where you went to school matters very little for most professions.
He discusses setting up Educational Savings Accounts. I looked into different tax-advantaged options available for putting money aside for kids college expenses. My hesitation with these plans is that they put control of a large sum of money into very young hands who can do with the money anything they want - with severe tax penalties. I don’t remember any discussion about how much ‘college money’ is enough but If you find out what tuition, room, and board cost for 4 years at the state college would cost now, that gives you a good starting place.
Once you have college money set aside you can work on paying off your home mortgage early. I understand that Ramsey does not like debt of any kind and many people have extended themselves too far by buying larger homes than they should, but I am not yet sold that paying off a modest, low APR home loan should even be on the list. He dispels some myths, especially the idea that a tax write-off in any form would make an investment worthwhile.
But it does not make sense to me that a person should keep paying rent until they can set aside enough money to pay cash for a home. I would rather save up for the down payment and then leverage my rent payments into equity.
Ramsey says that it will take most people 2+ years to complete steps 1 & 2 then another 5 years to complete step 6. This will bring you to the final “Baby Step”, Step 7, which is to build wealth and be generous with it. You will be investing in mutual funds and real estate. He says you have reached that ‘pinnacle point’ when your money makes more money than you do. You are officially wealthy when the income from your investments brings in more money each month than you can earn.
What I liked from what I heard is that unlike most self-help books this one is not designed for those hoping to “get rich quick” instead it will help you to get financially healthy. Ramsey talks a lot about what he calls “gazelle intensity,” which is about getting motivated and excited to get out of debt. The gazelle reference comes from Proverbs 6:5, where the intensity of getting out of debt is compared to a gazelle escaping from a hunter.
