Saving You Time #2: Dave Ramsey’s Total Money Makeover Cliffnotes

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Again, not super cleaned up. Copied and Pasted off of my notes on my iPad. Enjoy!

Dave Ramsey Money Makeover

Chapter 1: Total Money Challenge

Chapter 2 Denial

Frog in Warming Water example - If a frog jumps into a BOILING pot of water, it’ll hop out immediately because it senses the danger. If it jumps into a warm pot of water, it may not recognize the severity of the warming water and get killed as a result.

Chapter 3: Debt is not a Tool

Stay away from payday lenders

Stay away from the low end car lots with high interest

NEVER lend family money

NEVER do sign on a loan

NEVER do rent to own for anything. Rent a Center.

Avoid the 90 days same as cash tricks

WHOLE LIFE is a ripoff.

Millionaires don’t get used to car payments. They drive reliable used cars.

Car Leases are even worse than car payments.

Car dealerships make an average of $1300 per car on Leases, $775 on financed cars.

New Cars depreciate 60% in four years, so 0% Interest still a bad deal NEW.

The average millionaire drives a2 year old car with no payments.

New car mathematically does not justify having a warranty.

He doesn’t believe in building up your credit with cards to qualify for a mortgage.

He uses debit cards over credit. Same protections.

60% of people don’t pay off their cards every month.

Consumer Reports says 75% of airline miles are never used.

Don’t get credit cards for teens. 80% of college grads have credit card debt.

19% of people who declare bankruptcy are in college.

Debt consolidation only treats the symptom, not the root cause of spending.

Chapter 4: Money Myths The (Non)Secrets of the Rich.

Seeking false security in a job you hate is destructive.

Two main myths are risk denial and easy wealth, like the key to a treasure chest.

Use the example of someone who stays at a company they hay for 14 years but stay there for false security until they get laid off and they find they’re screwed.

Living right is not complicated, it may be difficult to stick to, but not complex.

Many Myths are rooted in denial and/or a short term easy way out mentality.

Myth: I’ll be fine when I retire. I know I’m not saving now but ill be ok.

Myth: Gold is a good investment and will cover me when I retire. Truth: Gold has a poor track record and has little use when economy collapses. Historically gold has rise about 2% a year, recently about 4.4%

Myth: I can get rich buy buying the cd set and working three days a week

Myth: Cash Value, Whole Life, will help me retire. Truth: Whole Life is awful.

He suggests getting term and putting the rest in mutual funds.

New mobile homes drop in value very quickly. From $25,000 new to 8k used in just five years or so.

Does not suggest pre paying for funerals or college because returns are so bad

Rather than pre paying for a funeral at $3500, at $3500 getting 12% returns for 39 years that would have grown to $368,500

Myth: Debt management companies will save me. Truth: Often times its a repackaged new loan that is treated like Chapter 13 Bankruptcy.

Myth: I can buy a kit to clean up my credit. Truth: Only inaccuracies can be removed so these are scams too.

Myth: My divorce decree says my spouse has to pay the debt, so i don’t.

Truth: Decree doesn’t take your name off the debt so you better be ready to.

Debt doesn’t get “split up” so you’re still on the hook for it.

Myth: The Debt collector likes me, he’s my friend. Truth: Always get every arrangement in writing before paying them.

Myth: With a bankruptcy, I can start over on a clean slate. Truth: Chapter 7 stays on your credit for 10 years, Chapter 13, basically a payment, stays on for 7. Either way, some applications ask if you’ve declared Bankruptcy, EVER.

Myth: I can’t afford insurance. Truth: It’s critical to have, especially Medical. Dave suggests a MSA (Medical Savings Account) not sure what that is.

Always buy homeowners and car with high deductibles to save on premiums.

Life Insurance - Buy 20 year term at 10 times your income.

Long Term Disability - You can get this through your employer.

Long Term Care - Get it after 55.

Health Insurance - Get it. Medical debt #1 cause of bankruptcy followed by CC

Get a Will: 70% of people die without one

Chapter 5: 2 more hurdles. Ignorance and Keeping Up with the Joneses

Hurdle #1: Ignorance: Nobody is born financially smart. Read, attend seminars, go on line. Educate yourself.

Hurdle #2: Keeping Up with the Joneses

References the Millionaire Next Door. Average millionaire lives in a medium sized house, drives a 2 year old paid off car, buys jeans at Wal Mart. They don’t care what the perception of them is.

Having the courage to not give in to peer pressure and admitting to your friends that you are “downsizing” can be very painful but the right thing to do.

Chapter 6: Save $1,000 Fast: Wall before you Run

Eating an elephant, like losing weight, requires doing small steps with vigor.

You NEED a written budget.

You NEED written goals, per Zig Ziglar as well. According to a Harvard study, 3% of people with written goals achieved more than 97% of others COMBINED.

Start with a new budget EVERY month.

If you’re married, you both have to AGREE on it. If something unexpected comes up, you need to come together and have an emergency money meeting.

Before you begin, you must be CURRENT with all of your lenders.


The $1,000 goal is to help with RAINY days. 78%of adults have a life impacting event every 10 years so BE READY for it.

Work extra if you need to, sell your stuff, but stop Credit Cards and save $1000.

Hide the money DO NOT TOUCH IT.

KEEP IT LIQUID. At 4% Interest you’re not going to get rich from of it anyway.

Chapter 7: The Debt Snowball. Lose debt FAST.

Identify the Enemy: Debt Payments.

Even with an income of $40,000 and average debt payments cumulative in $1850 a month, if you eliminated them, you would be a millionaire in 15 years by investing that in mutual funds at 12% interest. It would be tight on a take home of $2850 but doable.

Step 2: Start the debt snowball.

Personal Finance is 80% behavior and 20% knowledge.

He wants you to make a list of ALL your debts excluding the home mortgage payment. You will pay them off in that order with the exception of something considered an emergency like an IRS payment. Trust the process.

Paying off as many small wins as possible gets you going.

Most people carry a car note of $37 a month their entire lives. That same amount invested from age 25 to 65 would be 4 million dollars. You keep working your way up, making minimum payments on other debts until you knock out he other debts.

Focused intensity, like a magnifying glass on ONE spot of the newspaper, causes fire. You have to know where you are and where you want to go. You can tell how serious someone is by how intense they are in eliminating debt.


Sometimes you cant get the momentum you want and when that happens you have to get scrappy and pick up a side gig or SELL some of your stuff.

He does not suggest selling your home unless the payment is 45% of your net income or above. Normally, the mortgage is not the problem.

His rule of thumb for large items is that if you can’t be debt free of it in 18 to 20 months, dump it. Some people are stubborn and refuse to let go of toxic things.

The other way to clear the log jam is to work a little more to nudge it.

He does suggest temporarily halting 401K contributions as you clear out debt

When you dip into your emergency fund, you stop the snowball and refill $1,000

The goal is to snowball out of debt no later than 18 to 20 months out.

Stop buying more rentals until you clear out your snowball.

If you’re second mortgage is more than 50% of your gross annual income, doesn’t go in the snowball.

The Debt Snowball is probably the most important step in the Total Money Makeover according to him.

Chapter 8: Finish the Emergency Fund: Kick Murphy Out

Baby Step Three: Finish the Emergency Fund. 3 - 6 months of expenses.

At this point you should have No Debt and $1,000 in cash reserves.

A full emergency fund covers 3 to 6 months of expenses.

Remember, It WILL rain eventually, when you least expect it.

The emergency fund is a “Murphy’s law” repellent.

Paying off boats unless you live in them, starting businesses, shopping for things on sale are all NOT emergencies.

Liquid means no CD’s and No Mutual funds.

He suggests a Money Market account without penalties & check writing rights

The Emergency Fund is to cover needed expenses, not replace job income.

You have to sacrifice even things like “my truck is my baby” Let it go.

Emotional reminder: Personal Finance is PERSONAL. Every person and marriage are different.

If you see some Eminent clouds on the horizon like a job lay off, then its ok to temporarily stop snowballing and keep building up your emergency funds.

You should not buy a home until your emergency fund is fully funded.

Chapter 9: Maximize Retirement Investing: Be Financially Healthy for Life.

Like getting in shape, you have to attack debt with gazelle like intensity and then once you hit your goal, it’s much easier to cruise by keeping good habits.

Retirement is the ability to walk away from your job because of passive income

You need to reach a point when your money works harder than you do

Baby Step 4: Invest 15% in your retirement account

Why not more? You should be paying off your mortgage faster and saving for college.

Don’t include company matches in that 15%

If you over-invest, it prevents you from paying off your house sooner.

He suggests you get into Growth-Stock Mutual Funds with 25% each in:

Growth and Income Funds aka Large Cap aka Blue Chip

Growth funds aka Mid Cap or Equity Funds

International Funds

Aggressive Growth Funds

Roth IRA at $3,000 per year at 12% a year for 30 years ends at $873,000 but you only put in $90,000.

So start with any free match you can get and then fully fund Roth IRA's

Be sure the total comes out to 15%

Where does he keep getting this 12% a year from Mutual Funds # from?

Very powerful table page 161 which highlights what a 5 year delay does

Chapter 10: Make Sure the Kids are Fit too - College

The book “emotional intelligence” did a study which arrived at conclusion that success is 85% attitude, perseverance, diligence and vision. 15% knowledge.

College is important, but it is not the end all be all.

Student Loans are a cancer. Pay Cash if you can, get scholarships.

While in college, be frugal and keep expenses to a minimum.

Baby Step Five: Save For College

68% of families haven’t saved a dime for college. 4% have less than $1,000, 25% have between $1,000 and $10,000.

If you start an Educational Savings Account before your kid is 8 and fully fund it at $2,000 a year or $170 a month, you will have about $126,000 at college.

If you want to do more than an ESA, look at a 529.

College Savings Calculator Page 176

He is hardcore against student loans. Make sacrifices, 2 years at a J.C. Work study, part time work, etc. Military offers educational money. National Guard, simple jobs over the summer. At the time of this book, there were $4B a year in unclaimed scholarships.

Chapter 11: Pay Off the Mortgage - Be Ultra-fit

“Good enough is the enemy of best”

Baby Step Six: Pay off your mortgage

Myth One: I want to keep my home mortgaged to keep the tax deduction

Truth: Why pay $10,000 in interest to save $3,000 on taxes?

Myth 2: It is wise to constantly leverage

Truth: You don’t make much when the smoke clears

Don’t borrow against your house to invest in stocks, taxation hurts.

Be careful borrowing against your home and then having a life impacting event

Big difference paying off your house in 15 years versus just planning on paying it off sooner. He’s a big advocate of the 15 year fixed loan.

NEVER get an ARM loan. NEVER get a balloon mortgage.

Myth: HELOC's is good for emergencies.

His advice is to ALWAYS do 15 year fixed and NEVER pay more than 25% of your NET pay.

If you SAVE SUPER AGGRESSIVELY for a few years you can possibly buy a home in cash.

Have to be willing to live like nobody else today, to live like nobody else tomorrow.

Chapter 12: Build Wealth Like Crazy

Baby Step Seven: Build Wealth

Have FUN



Bay Step recap:

#1 : Save $1,000

#2: Pay Off Debt

#3: 3-6 month emergency fund

#4: Invest

#5: College Savings

#6: Pay Off House

#7: Give 

Thank you Ernesto for sharing Dave Ramsey. I attended his class several years ago and I brought my daughter to the class so she could learn the basics of money. It was very helpful for her and her development over the years. I did not believe the basics would help me but it was a good review and very useful. It is always good to go back to the basics once in awhile and cement these facts back into my head.

Stay married if you want to keep your wealth- Easy to say but the best way to stay married is to do your duediligence. I know it sounds dry but make sure she is a keeper, has your values, saves money and does not want to buy everything that she sees, trust is also very important for a good marriage and happy finances.

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