The Total Money Makeover: Classic Edition

by Dave Ramsey

  So after losing everything, I went on a quest, a quest to find out how money really works, how I could get control of it, and how I could have confidence in handling it. I read everything I could get my hands on. I interviewed older rich people, people who made money and kept it. That quest led me to a really, really uncomfortable place—my mirror. I came to realize that my money problems, worries, and shortages largely began and ended with the person in my mirror. I realized also that if I could learn to manage the character I shaved with every morning, I could win at money. That quest, the one that ended with me staring at myself in the mirror, led me on a new journey: the journey of helping others, literally millions of others, take that same quest to the mirror. Live Events, Financial Peace University, The Dave Ramsey Show, and the New York Times bestsellers Financial Peace, More Than Enough, The Total Money Makeover, and EntreLeadership have enabled me to tell millions of Americans what I have learned—the hard way—about money.

  The Big Challenge: Find a Mirror

  I have a challenge for you. Are you ready to take on the guy or gal in your mirror? If you are, you are ready to win. I rediscovered God’s and Grandma’s simple way of handling money. Wealth building isn’t rocket science, which is a good thing for me (and probably you). Winning at money is 80 percent behavior and 20 percent head knowledge. What to do isn’t the problem; doing it is. Most of us know what to do, but we just don’t do it. If I can control the guy in the mirror, I can be skinny and rich. We will let other books work on the skinny, and I will help you with the rich part. No, there are no secrets, and yes, this will be very hard. Hey, if it were easy, every moron walking would be wealthy.

  So my Total Money Makeover begins with a challenge. The challenge is you. You are the problem with your money. The financial channel or some late-night infomercial gimmick aren’t your answer; you are. You are the king of your future, and I have a plan. The Total Money Makeover plan isn’t theory. It works every single time. It works because it is simple. It works because it gets to the heart of your money problems: you. It is based on a series of prices that must be paid to win. All winners pay a price to win. Some losers pay a price and never win, and that is usually because they didn’t have the benefit of a proven plan for financial fitness.

  Ordinary People

  Tens of thousands of ordinary people have used the system in this book to get out of debt, regain control, and build wealth. I’ve scattered their stories throughout the book. If at any point during your makeover you are tempted to quit or you just need a little encouragement, read one of these stories. These people have sacrificed for a short period of time so they will never have to sacrifice again.

  If you are looking for a road map to get you home, you’ve found it. If you are looking for something easy or fast, you have the wrong book. If you are looking for a book to help you pass your CPA exam in the area of financial knowledge, you have the wrong book. If you are looking for a writer who has intricate academic theories (that don’t work in the real world), you’ve got the wrong guy. I have many of the academic pedigrees, but I ended up broke. I have actually twice become a millionaire from nothing. The first time I was in my twenties, the money was in real estate, and I lost that due to my stupidity; the second time I was not yet forty, but I did the money thing right that time, and I am debt-free.

  I often hear about broke finance professors who bemoan that I am way too simple, or as an e-mailer told me on The Dave Ramsey Show one day, “You are a one-trick pony.” To those of you who say you have great but unexecuted plans, I say, “Prove it. I have.” I like the way I’ve built wealth better than the way you haven’t. You will meet people, educated and uneducated, throughout this book who have won, or begun to win, with money for the first time in their lives. The Total Money Makeover works!

  The Total Money Makeover Motto

  This plan works, but it will cost you. It will teach you to say new words, like no. In short, your Total Money Makeover will be a personal money makeover where you learn this motto: IF YOU WILL LIVE LIKE NO ONE ELSE, LATER YOU CAN LIVE LIKE NO ONE ELSE. This is the motto of your Total Money Makeover. It’s my way of reminding you that if you will make the sacrifices now that most people aren’t willing to make, later on you will be able to live as those folks will never be able to live. You will notice the motto all through the book, even across the bottom of the pages. I’m sorry there isn’t an easier path to feature in the motto, but the good thing about this one is that it works. You can repeat the motto to yourself as you pass up a purchase in order to hit your goals. When you work late and are tired, you can say the motto to yourself. Of course, this isn’t a magic formula; I’m not into that. But it does remind you that you will win, and the payoff will be worth the cost.

  Some of you are so immature that you are unwilling to delay pleasure for a greater result. I will show you exactly how to get the result you want, so the price you pay will not be in vain. I don’t want to walk across hot coals because it is fun, but if I can be shown how a short, painful walk will do away with the lifetime of worry, frustration, stress, and fear that being constantly broke brings me, then bring on the hot coals.

  Early on in our marriage, we decided that Kari would stay home with our children rather than working outside the home. This decision has perhaps disadvantaged us financially at times, but it has been the best choice for our family in many other regards.

  Financially, we have made some mistakes such as keeping our student loans around because of the “low interest” and even leasing a car at one point. To us, credit cards were a status symbol, and we had a few. Our debt peaked at about $375,000 (including the mortgage). That’s not the smartest situation to get yourself into when you have four kids and one salary. By the time we got on Dave’s plan, we were ready to work with gazelle intensity to get rid of our debt! During one six-month period we paid off $57,000 and gave $7,000 to our church. That really encouraged us and kept us going! It was also great going to Atlantis with Dave and Sharon as finalists in The Total Money Makeover Challenge!

  Now we are debt-free and helping our daughter through her first year of college. We are also saving for retirement at a good rate and building a new house. We enjoy earning interest now, rather than paying it. We couldn’t have done it without Dave. We pay cash for everything, and we tell our money where to go. We can’t even tell you the peace and freedom this has brought our entire family!

  The first months were the most painful as we went from credit to cash. But it’s so nice not to be paying for today and yesterday anymore! By following Dave’s Total Money Makeover plan, you will gain peace of mind as you get control of your money. Just remember to stay focused.

  The key to our success was both of us getting on the same page at the same time. We now work together to plan our spending rather than racing to outspend each other. We are each other’s source of strength during weak moments when spending sounds fun again. We have learned to have FUN talking about money and financial goals. It’s no longer a contentious subject.

  Our advice: Honestly assess your earning capacity and live below your means. Be in control of your own destiny and your own happiness!

  Mark and

  Kari Stolworthy (both age 43)

  CPA/Systems Consultant;

  Stay-at-Home Mom

  My Promise to You

  My promise to you is this: if you will follow the guidelines of this proven system of sacrifice and discipline, you can be debt-free, begin saving, and give as you’ve never given before. You will build wealth. I will also promise you that it is totally up to you. The Total Money Makeover isn’t a magic formula to wealth. This system will not work unless you do, and then only to the degree of your intensity in implementing it. In the following pages, you will meet many individuals and families who have won many money victories, but not one of them won until they won the battle with the guy in the mirror. Your situation isn’t your spouse’s fault (well, maybe, but we’ll talk later), it isn’t your parents’ fault, it isn’
t your children’s fault, and it isn’t your friends’ fault. IT IS YOUR FAULT!

  But guess what? That means that if you’re the one who got you into this mess, you’re the one who can get you out. No law, regulation, or mandate will fix you. No politician’s promises or government handout will fix you. No dream job or sky-high salary will fix you. Some of those things may help, but none of them will do a thing unless you take charge of your own life. This is your life, your call, your future. This is 100 percent your decision. If you’re ready to move, then let’s get going. Right now. I’ll lead the way. But I won’t push you across the starting line, and I can’t drag you across the finish line. This whole journey from start to finish is up to you.

  DAVE RANTS . . .

  Savings without a mission is garbage. Your money needs to work for you, not lie around you.

  My financial life began turning around when I took responsibility for it. People all across America have used these steps to become free, regain a sense of confidence and control, and build a future for their families. Please join me on a journey away from the young man I was, the one I described earlier who was racked with worry, fear, and guilt over money. Take this journey with me to your own Total Money Makeover, but remember, the first part of the quest is confronting the man in the mirror. That man in the mirror is your Total Money Makeover Challenge.

  2

  Denial: I’m Not That Out of Shape

  Several years ago I realized I had let my body dissolve into flab. I had worked so hard for so many years that I had abandoned the care of my physical condition. The first step to getting into shape was to realize I needed to change my ways, but the second and equally important step was to identify the obstacles to getting there. What would stop me from getting into shape? Once I understood those obstacles, I began a process to lose weight, grow muscle, and become fitter. Your Total Money Makeover is the same. You need to realize there’s a problem, but you must also see what could hinder your move toward financial fitness. The next few chapters will identify some major obstacles to YOUR Total Money Makeover.

  Look in the mirror. Take a long look. What do you see? Suck in that gut; hold up your chest, and really look at yourself. It doesn’t matter how many angles or poses you take; the mirror is cruel. “Well, I’m really not that fat, maybe just a little flabby.” My dad used to say that 90 percent of solving a problem is realizing there is one. Focused intensity, life-or-death intensity, is required for you to reset your money-spending patterns, and one of your biggest obstacles is DENIAL. The sad thing is that you can be financially mediocre in this country, financially flabby, and still be average. And if the truth be known, being average, normal, and financially flabby is pretty much okay by most folks’ standards. This, however, is not a book for the wimpy among us. This is a book about winning, about really having something.

  We started out our marriage with absolutely no debt. We lived on a single income, the cars were paid for, and we even had a small amount of savings. However, we eventually made the misguided decision to move into a much larger house that stretched us financially. After a few years, I changed jobs and we increased our annual income—giving us the illusion that we could increase our standard of living. That is when the debt really started accumulating. We financed two NEW cars to replace our old ones. We started buying everything on credit. We even got a home equity loan. Before we realized it, we were buried in debt!

  Kelley saw The Total Money Makeover in our local bookstore and bought it as a Father’s Day gift for me. By Independence Day, we had declared war on our debt! We had $6,000 in savings but $16,000 in debt, not including our house. The plan required us to take out $5,000 from our savings to put toward our debt—leaving us with the $1,000 Baby Emergency Fund. It was tough seeing our hard-earned savings disappear, but it really helped our Debt Snowball get rolling. We sacrificed in other areas, and in just ten months we paid off all of our consumer debt!

  Dave helped us realize that we had to draw the line and stop living beyond our means. Instead of having to pay our creditors each month, we can finally start paying ourselves and investing in our future!

  Mark (age 40) and

  Kelley (age 39) Reep

  Civil Engineer; Nursing School Student

  Don’t Wait to Have Denial Knocked Out of You

  I regularly speak to live audiences of two to twelve thousand people, teaching them the ideas in this book. After one live event where I spoke to four thousand people, Sara told me that her Total Money Makeover came only after life placed a call to her. She said she had heard me quote the Wall Street Journal as reporting that 70 percent of Americans live paycheck to paycheck, but she honestly thought she was in the 30 percent who were fine. She had financially struck a pose, and the pose was denial.

  With two sons from her previous marriage, Sara had just remarried and was happy and secure in her job, as was her husband, John. Their new life together seemed awesome. Their household combined income was about $75,000 per year, with the “normal” debts of a small student loan, a car loan, and “only” $5,000 on a credit card. With life under control and even going well, Sara and John decided their new family needed a new home, so the builder was selected and construction began. Somewhere deep inside there may have been uneasiness, but it was very deep. Finally, the day came when the new home was complete. Everything was going to be fine now, the new family in the new home, the way it is “supposed” to be. In May, they moved into the new home, complete with big new payments.

  In September, Sara’s boss asked to see her in his office. She was excelling at work and braced herself for a big “atta, girl” followed by a nice bonus or raise. Instead, the boss explained her job was being eliminated. “Downsizing, you know,” he said. Her life’s work was cut from her—and $45,000 of their $75,000 income—with the boss’s chilling words. Not only was her pride hurt and her career path cut short; a creeping terror grew deep down inside as she drove home to tell John. That night there were tears, fears, and the sudden stark realization that she and John were financially fat. Suddenly, Sara and her family were facing foreclosure on the house and repossession of the car. The basics of life had become precious.

  Sara and John had listened to The Dave Ramsey Show on the radio, but they always thought someone else needed a Total Money Makeover. After all, they always held their stomachs in when standing in front of the mirror. The night after her layoff was the first night they looked in the financial mirror and saw fat people. The sight wasn’t pretty—big house payments, fat car payments, large student loans, bloated credit cards, anorexic savings, and no budget. They saw fat people.

  When you are physically fat, it is hard to be in denial, because there is the ever-widening belt line. When you are financially fat, however, you can fake it and look good for a while. Your friends and family will participate in your fantasy/denial, which makes you believe you are doing just fine. One of the four major factors that keep people from winning in money by getting a Total Money Makeover is not realizing they need one. Sadly, some of the most dramatic makeovers I’ve seen have been by people who had life smack them so hard they got the denial knocked out of them, like Sara. If life isn’t smacking you around at the moment, you are actually in greater danger than Sara and John the night of the layoff. You are a real candidate for financial mediocrity or even a major crisis brought on by denial, and you have to see the need to make dramatic changes. If you are apathetic because everything seems “just fine,” then you will be unwilling to make the huge changes needed to get huge results.

  DAVE RANTS . . .

  For your own good, for the good of your family and your future, grow a backbone. When something is wrong, stand up and say it is wrong, and don’t back down.

  Mmm . . . Frog Legs

  Years ago, in a motivational seminar by the master, Zig Ziglar, I heard a story about how mediocrity will sneak up on you. The story goes that if you drop a frog into boiling water, he will sense the pain and immediately jump out. However, if y
ou put a frog in room-temperature water, he will swim around happily, and as you gradually turn the water up to boiling, the frog will not sense the change. The frog is lured to his death by gradual change. We can lose our health, our fitness, and our wealth gradually, one day at a time. It might be a cliché, but that’s because it is true: The enemy of “the best” is not “the worst.” The enemy of “the best” is “just fine.”

  I was in denial for a long time about my life and my spending habits. By my midtwenties, I was $23,000 in debt and had little motivation to get out of it. My biggest problem wasn’t realizing how nice it was to be free of financial concerns—it was gambling. I couldn’t stop. Even when I began listening to The Dave Ramsey Show and tried to start attacking my debt, I often failed. I kept losing my money to the addiction I had—never giving me time to get my feet on the ground.

  It took some time, but finally the financial pressures became too much to bear. I knew I needed a change. I started attending an amazing program called Celebrate Recovery, a ministry dedicated to helping people with addictions, hurts, and hang-ups.