The Total Money Makeover helps you break free from the cycle of debt by taking small, manageable steps. It guides you to build the financial security you deserve through a seven-step process.
Favorite quote from the author:
There are many books out there that promise to teach you how to become a millionaire. Some advice works, and some doesn’t. Many of us dream about building wealth when our bank accounts aren’t even at zero—they’re in the negative. Often, poor cash flow management, high-interest debt, and ignoring the pros and cons of financial decisions make things worse.
It might be hard to hear, but you’re probably not managing your finances responsibly right now. I’ve been there too. Growing up, I didn’t have to work a single day. I usually got what I wanted—most of the time anyway—and if I saved a bit of birthday money, I could buy that new Xbox or laptop in a few months. My financial situation wasn’t ideal, but I didn’t realize it.
If you’re serious about creating a happy and fulfilling life, this approach has to change. Luckily, Dave Ramsey is here to help. The Total Money Makeover is a hugely popular personal finance book, selling over 5 million copies since its 2003 release.
To start your journey toward financial health, here are the first three steps you need to take:
1. Set aside $1,000 in an emergency fund.
2. Begin paying off your debts, starting with the smallest one first.
3. Expand your emergency fund until it can cover at least three months of expenses.
Ready to start your financial transformation? Let’s break down these first steps.
Set aside $1,000 in an emergency fund
If your car broke down today, could you pay the mechanic in cash? Most people can’t. They’d need to rely on a credit card, adding to their credit card balances. Or what if you or your child suddenly needed medical care, racking up a $1,000 hospital bill?
According to Money Magazine, 78% of us will face a major financial crisis within any given 10-year period. That’s why Dave Ramsey’s first step toward financial stability is to save $1,000 and keep it in an emergency fund. This is a crucial baby step in building an emergency fund that acts as a safety net.
This step serves two important purposes:
1. It shows you that it’s okay to tackle your finances gradually. You don’t need to address all your debt, investments, and savings goals at once—and that’s perfectly fine.
2. It boosts your confidence by proving that you can save money. This will help you move forward with the next step without feeling overwhelmed.
While $1,000 might not cover everything, it’s a solid start and will reduce your need to take on more debt, especially high-interest debt.
Begin paying off your debts, starting with the smallest one first
Next, Ramsey introduces the debt snowball method. Just like a small snowball rolling downhill gathers more snow and speed, growing into a powerful snow boulder, you can use this momentum to pay off your debt.
List all your debts and order them by size, starting with the smallest. Then, focus on paying off that first debt—even if it’s just an outstanding $10 phone bill or money you owe a friend. The smaller the debt, the better. Each debt you pay off builds your confidence to tackle the next one. Eventually, only your largest debt remains. By then, you’ll have the tools and mindset to conquer it. This method works especially well for eliminating credit card balances and personal loans with high-interest rates.
Personal tip: I’m not sure if Ramsey suggests this, but I’d recommend using 10% of your income to pay down debt. No matter your income level, you can probably afford to set aside 10% without affecting essential expenses like rent. This strategy will help you pay off your debt faster, especially if you focus on debt with the highest interest rates.
Expand your emergency fund to cover at least three months of living expenses
If you lost your job tomorrow, could you pay for rent and food for the next six months? Or even three? If not, this should set off some alarms.
The most damaging financial setbacks often come out of nowhere. Having a cushion that covers at least six months of expenses offers immense peace of mind. Ramsey advises revisiting your emergency fund after you’ve made progress on your debts. Grow it until it can cover at least three months of living expenses. This is a key step in making sure your financial situation stays stable, even in tough times.
For most people and families, this amount falls somewhere between $5,000 and $25,000. If your household earns $3,000 per month, aim to save at least $10,000 or more. Reaching this savings goal will help you build a strong safety net, preparing you for any future financial challenges.
Personal tip: Since holding onto debt is more expensive than not having the money saved, I’d suggest focusing more on debt repayment at first. Consider putting 10% of your income toward debt and 5% toward your emergency fund. Once your debt is paid off, you can redirect those funds into your emergency savings, mutual funds, or retirement savings.
The Total Money Makeover Review
Debt is always your worst expense. Even if it’s not the largest amount you pay each month, it’s the worst because it grows over time. With every percentage point in interest, your debt increases with each passing day. This is especially true for high-interest debt, which can quickly spiral out of control.
I thought about listing just the first step here, as I’d rather you start by saving $1,000 than get overwhelmed by the first three steps. But I realized that giving a broader overview might be more helpful, especially for those who have already saved that initial $1,000.
I spent the past year building up my emergency fund, and now I have a solid 12-month buffer. Moving forward, the money I save will go toward investments, with the goal of making a significant one soon. Exploring different financial institutions and their offerings, like checking accounts or mutual funds, can also be a good idea as you expand your financial toolkit.
The biggest advantage you can have in building wealth is simply starting. With The Total Money Makeover, Dave Ramsey provides the perfect blueprint for doing just that. This summary offers an overview of the first steps—now it’s time to take action and use the book to guide you through the finer details!
Who would I recommend The Total Money Makeover summary to?
The 18-year-old who is weighing college options and considering the impact of taking on significant debt, the 35-year-old earning $70,000 a year who never seems to have money left for vacations, and anyone who doesn’t yet have three months of expenses saved up. This summary is also ideal for anyone looking to improve their credit score or who wants to understand the pros and cons of different financial strategies.
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