Book Review: Total Money Makeover by Dave Ramsey

The Total Money Makeover by Dave Ramsey is a very well known book in the personal finance arena and for good reason, it teaches a lot of the basics of good money management. I’d wager that many of you reading this have either heard of the book or are familiar with Dave Ramsey, it’s author. His common sense approach to building wealth is well known at this point and for a good reason, quite simply, it works.

The essence of Ramsey’s book and approach come down to his 7 baby steps:

Baby Step 1: Save $1,000 in an emergency fund

The logic in this being the first step is that if you have nothing set aside in case your car breaks down or you have an unexpected medical bill, it’s going to pull you off your path and potentially discourage you.

Baby Step 2: Pay down all of your non-house debt

In this step, Ramsey recommends the debt snowball. By this he means to lay out all of you debts from smallest to largest and begin putting all of your excess funds toward the smallest bill until it’s paid. This step assumes you have created a budget for yourself and you are not saving anything toward retirement or any other purpose. Your sole focus should be paying off debt. After the smallest debt is paid you roll all of that money over to the next smallest and so on. I find that this is a good method for those who need to see some quick wins to encourage them along the path. Obviously the math would say that you should start with the most expensive, highest interest, debt that you have to save the most interest over time. However, if that is a large debt and may take you a year to pay off, that’s a long time to wait to see significant progress.

Baby Step 3: Fully fund your emergency account to cover 3-6 months worth of expenses

This step is pretty straight forward, now that you have a budget you know exactly what your monthly expenses are and can calculate the amount you need to set aside. Again, this is being done without any other savings for retirement or kids college funds happening until complete. These fund are recommended to be saved in a highly liquid account that can be easily accessed in case of emergency such as a savings or money market account, not invested in things like stocks. The goal is to keep it safe and easy to access.

Baby Step 4: Invest 15% of your income into retirement accounts

Here Ramsey recommends taking advantage of your work 401k plans and IRAs. The 15% is calculated from your gross before tax income. He’s a stickler on this amount because even if you have a child looking for college funds, their degree won’t feed you in retirement. However, he doesn’t recommend more at this point as you will need funds to save for college if you have kids and to pay off your mortgage in the next steps. He’s a firm believer in selecting high performing growth stock mutual funds with strong 5-10 year track records. He also references quite often the historical benchmark of the return of the stock market as 12% annually. In my opinion a much higher bar than any investor should be expecting. One other note I would add is that Ramsey doesn’t seem to have much concern over the expense ratios of the funds or his financial advisors. Flatly, I think this is a mistake. There are tons of studies that will show you the math and high expense ratios or high cost advisors almost never offer a high enough return to be favorable to their lower cost brethren.

Baby Step 5: Save for college (if applicable)

The clear lesson here is to plan to pay for college in cash. Do your homework on the colleges under consideration, what will 4 years cost and how do they all compare? Based off of this, make sure to save enough to pay for the school in full without loans. Lastly, a statement he makes that I agree with is that college may or may not be the right choice depending upon what your kid wants to do with their future. Don’t assume it’s the only path to success!

Baby Step 6: Pay off your mortgage

Now you have made it, you have no debt but the house, a nice emergency fund, you are saving 15% annually for retirement and you are saving to pay for your kids college in cash! What more could you ask for right? Well apparently you could want your home paid off. You have your budget, know what your income will be and what your expenses and savings are that will be coming out of said income. Whatever is left, now starts going to paying off your mortgage.

Baby Step 7: Build wealth and give

Finally, you have reached financial freedom according to Ramsey. You are saving, you have zero debt and true control over your income. Per Ramsey, Now you have lived like no one else, so that you can live like no one else! From here you should be able to quickly grow your wealth and have to opportunity to give back to your favorite organizations.


Personally, I learned quite a bit from The Total Money Makeover. I think once you have grasped the concepts and committed, there are opportunities for improvement such as when I mentioned attacking the highest cost debt first. However, his system has worked for millions of people according to Ramsey so it’s hard to argue with the success. One aspect that did make a large difference to me was when I tried the envelope method. This is simply taking envelopes at the beginning of the month and the cash you have budgeted for each category you will be paying in person throughout the month so you must physically hand over the cash for each transaction. You would be surprised how much harder it is to see the green backs getting handed out than when you use plastic!

Overall I was impressed with the book and felt it offered good value to anyone trying to get their finances under control or looking to learn the basics of personal finance.

4 out of 5 stars! Available for sale here.

What are your thoughts? What did Ramsey get right and wrong? Please share in the comments below.

Author: Gen Xer