Candy For Idiots

I read the Dave Ramsey Total Money Makeover book and really enjoyed it. No doubt about it, if you follow his plan, you’re going to attain financial success and security, no mater what you make per year!

The thing is, “wealth” is a relative term. Someone might retire with $150,000 in the bank and consider himself wealthy by the means in which he lives. To others, he would be dirt poor.

Since this book isn’t about semantics and actually contains a blue print on how to become rich, here is a brief outline of the total money makeover.

Step 1. Save a $1,000 emergency fund to only be touched for real emergencies. (Car breaks down, hospital visit you can’t pay for out of pocket, etc)

Step 2. Organize all debt from smallest to largest.

Step 3. Pay the minimum monthly payment on all accounts except the smallest and pay as much as possible until it’s paid off.

Step 4. Take the “as much as possible” money and apply it towards the next largest debt on the list and continue these steps until all debt is paid off. This is called the “debt snowball”.

Step 5. Using the “as much as possible” money, start growing the emergency fund to an amount that will support your family for up to 6-months (3-months if you’re single).

Step 6. Once emergency fund has matured, stop saving to it and start saving your “as much as possible” money to your house fund.

Step 7. Once you have a down payment on your house (around 15%), start investing 15% of your household income into a Roth IRA and other pre-tax retirement plans (only contribute to a 401k as much as your company will match).

Step 8. Pay off mortgage in 15 years.

Seriously, based on my family’s income, by the time we retire, we’ll have over $8,000,000 in the bank according to this plan. Probably more, but that’s my quick simple math at work.

The hardest part of this plan is the necessity of having to live like no one else so that one day you can live like no one else! What that means is, no more partying, reduce your shopping to nothing, don’t go to restaurants, etc, etc, etc.

Especially in these first few steps, you really need to lay low and not try to “keep up with the Joneses.” What that means is, just because your friends, family and neighbors have cool new flat-screen TV’s doesn’t mean you have to go into debt just to have one too!

It’s hard to have to reduce the restaurants, sporting events, etc. But if you do, and if you make your money work for you, you’re going to be a millionaire! The thing is, you aren’t going to remember the night you drove past Denny’s and had spaghetti at home instead! But you’ll certainly be enjoying the new Viper you just paid CASH FOR!

Read the book. It’s great!

Posted on March 24th, 2009 under Featured • RSS 2.0 feed • Leave a response, or trackback