by Dave Ramsey
Hurdle #1: Ignorance: No One Is Born Financially Smart
The first hurdle is Ignorance. In a culture that worships knowledge, to say ignorance about money is an issue makes some people defensive. Don’t be defensive. Ignorance is not lack of intelligence; it is lack of know-how. I have seen many newborn babies of friends, relatives, church members, and team members. I have never seen a baby who was born ready to be wealthy. Never do the friends and relatives gather around the window of the nursery and exclaim, “Oh, look! She is a born financial genius!”
No one is born with the knowledge of how to drive a car. We are taught the skill (although some of us don’t seem to have learned). No one is born with the knowledge of how to read and write; we are taught how. None of these are innate skills; all must be taught. Likewise, no one is born with the knowledge of how to handle money, but we AREN’T taught that!
At the coffeepot one day, one of my leaders said, “We need to get this Total Money Makeover process taught in college.” Before she could graduate from a small Christian college, she was required to take a class on how to interview and hunt for a job. She said the class wasn’t very hard academically, but its practical implications made it one of the most valuable classes she took in college. We go to school to learn to earn; we earn and then have no idea what to do with the money. According to the Census Bureau, the average family in America makes right at $50,000. Even if they never get a raise, the average family will make over $2 million in a working lifetime! And we teach NOTHING about how to manage this money in most high schools and colleges. We graduate from school, go out into the world, and get a financial master’s degree in D.U.M.B.
Do we make a mess of our finances because we aren’t intelligent? No. If you put someone who has never driven a car, has never seen a car, and can’t spell car in the driver’s seat of a brand-new car, the wreck will come before leaving the driveway. Backing up and gaining more speed only leads to another wreck. “Trying harder” isn’t the answer because the next wreck will not only total the car but also hurt other people. This is ludicrous!
During our lifetimes Americans average $2 million, yet we graduate from high school, college, or even graduate school and can’t spell financial. This is a bad plan! We have quit teaching personal finance, and we have to start again. That is why “Foundations in Personal Finance” is taught in high schools around the nation; however, our high school curriculum won’t help you unless you are still in high school.
If you made a mess of your money and/or haven’t gotten the best use from it, usually the reason is that you were never taught to do so. Remember, ignorance doesn’t mean dumb; it means you have to learn how. I’m fairly intelligent. I have had multiple best-selling books, speak to millions on my radio and TV programs, and run a multimillion-dollar company, but if you asked me to work on your car, I would make a mess. I don’t know how; I’m ignorant in that area.
Overcoming ignorance is easy. First, with no shame, admit that you are not a financial expert because you were never taught. Second, finish this book. Third, go on a lifetime quest to learn more about money. You don’t need to apply to Harvard to get an MBA with a specialization in finance; you don’t have to watch the financial channel instead of a great movie. You do need to read something about money at least once a year. You should occasionally attend a seminar about money. Your actions should show that you care about money by learning something about it.
Sharon and I have a great marriage—not perfect, but great. Why? We read about marriage, we go to marriage retreat weekends, we date weekly, we sometimes take a Sunday school class on marriage, and we even meet once in a while with a friend who is a Christian marriage counselor. Do we do all these things because our marriage is weak? No, we do all these things to make our marriage great. We have a great marriage because we work at it, make it a priority, and seek knowledge on marriage. Great marriages don’t just happen. Wealth doesn’t just happen. You will spend some time and effort on getting rid of ignorance. Again, you do not need to become a financial geek; you just need to spend more time on your 401(k) options and your budget than you do picking out this year’s vacation.
We were going through life like, as Dave says, “Gomer Pyle on Valium.” We didn’t have a clue where our money was going. My wife and I couldn’t seem to agree on how to manage our incomes. Like all “normal” couples, we thought you HAD to have credit cards to build up your credit and that the SMART thing to do was finance everything. What a huge lie!
Then one day my wife happened to catch The Dave Ramsey Show. After listening for a while, she began to share with me the principles Dave talked about, and we were hooked!
The first step in our Total Money Makeover was to get our budget together, which certainly helped us to get organized with our money, but it was also our desire to live a debt-free lifestyle that allowed us to succeed. Next we had to work toward saving for an Emergency Fund and paying off our debts using the Debt Snowball.
Baby Step Three, the fully funded emergency fund, was the hardest step for us. We had to resist the urge to go spend all this available extra money after finishing our Debt Snowball. Thankfully we built up our Emergency Fund, because later I lost my job. With no debt and an Emergency Fund in place, I was able to take my time to find the great job I have today.
Our family life has totally changed for the better. We know what our goals are for our money, and our kids are learning to give, save, and spend money wisely. This plan has helped us regain the hope of financial security and the spiritual peace we all look for in life.
Walter (age 47) and
Stephanie (age 45) Frick
Sales Representative; Kindergarten
Teacher’s Assistant
Ignorance is not okay. “What you don’t know won’t hurt you” is a really stupid statement. What you don’t know will kill you. What you don’t know about money will make you broke and keep you broke. Finish this book and read others. You can always check my website at daveramsey.com/books for recommended reading by other authors that generally line up with my teachings.
Hurdle #2: Keeping Up with the Joneses: The Joneses Can’t Do Math
The second hurdle in this chapter is Keeping Up with the Joneses. Peer pressure, cultural expectations, “reasonable standard of living”—I don’t care how you say it, we all need to be accepted by our crowd and our families. This need for approval and respect drives us to do some really insane things. One of the paradoxically dumb things we do is to destroy our finances by buying garbage we can’t afford to try to make ourselves appear wealthy to others. Dr. Tom Stanley wrote a wonderful book in the ’90s that you should read entitled The Millionaire Next Door. His book is a study of America’s millionaires. Remember, if you want to be thin and muscular, you should study the habits of people who are thin and muscular. If you want to be rich, you should study the habits and value systems of the rich. In his study of millionaires, Stanley discovered that their habits and value systems were not what most people think. When we think of millionaires, we think of big houses, new cars, and really nice clothes. Stanley found that most millionaires don’t have those things. He found the typical millionaire lives in a middle-class home, drives a two-year-old or older paid-for car, and buys blue jeans at Wal-Mart. In short, Stanley found that the typical millionaire found infinitely more motivation from the goal of financial security than from what friends and family thought. The need for approval and respect from others based on what they owned was virtually nonexistent.
If we look at Stanley’s findings and hold those up against Ken and Barbie’s life plan, we find Ken and Barbie to be lost, off course, and clueless. Ken and Barbie are in our office all the time for financial counseling. Last year they were here, and their names were Bob and Sara. Bob and Sara make $93,000 per year and have for the last seven years. What do they have to show for it? A $400,000 home that they still owe $390,000 on, including a home equity loan used to furnish it. They have two $30,000 fleeced cars and $52,000 in credit-
card debt, but they have traveled well and dressed in high fashion. The $25,000 left on a student loan from college ten years ago is still outstanding because they have no money. On the positive side, they have $2,000 in savings and $18,000 in their 401(k). These people have a negative net worth, but they really look good. Bob’s mom is very impressed, and Sara’s brother frequently stops by to ask for money because they are “obviously doing well.” They present the perfect picture of the American dream that has turned into a nightmare. Behind the perfect hair and the French manicure, there was deep desperation, a sense of futility, an unraveling marriage, and disgust with themselves.
This may be one of the places our metaphor of weight loss for fiscal fitness breaks down. If your body were in the same condition that Bob and Sara’s money is in, everyone would think, Five hundred pounds is just too fat. Your problem would be apparent to family, friends, strangers, and even you. The difference with Bob and Sara is that they have a “dirty little secret.” The secret is that they are nowhere near as cool as they appear. They are broke and desperate, and no one knows it. Not only does no one know it, but everyone thinks the opposite is true. So when my counselor made suggestions to turn around this bankruptcy looking for a place to happen, there was more than one place of resistance in the heart. The truth is that Bob and Sara are broke. They need to get rid of the cars and sell the house.
Resistance of the heart is real. First, of course, we like our nice houses and nice cars, and selling them would be painful. Second, we don’t want to admit to everyone we have impressed that we are fakes. Yes, when you buy a big pile of stuff with no money and lots of debt, you are a financial fake. Peer pressure is very, very powerful. “We are scaling down” is a painful statement to make to friends or family. “We will have to pass on that trip or dinner because it is not in our budget” is virtually impossible for some people to say. Being real takes tremendous courage. We like approval, and we like respect, and to say otherwise is another form of denial. To wish for the admiration of others is normal. The problem is that this admiration can become a drug. Many of you are addicted to this drug, and the destruction to your wealth and financial well-being caused by your addiction is huge.
Radical change in the quest for approval, which has involved purchasing stuff with money we don’t have, is required for a money breakthrough. Sara’s breakthrough came with family. Her family was upper-middle-crust and had always given Christmas gifts to every member. With twenty nieces and nephews and six sets of adults to buy for, just on her side, the budget was ridiculous. Sara’s announcement at Thanksgiving that this year Christmas giving was going to be done with the drawing of names, because she and Bob couldn’t afford it, was earth-shattering. Some of you are grinning as if this is no big deal. It was a huge deal in Sara’s family! Gift giving was a tradition! Her mother and two of her sisters-in-law were furious. Very little thanks were given that Thanksgiving, but Sara stood her ground and said, “No more.”
Sara has a master’s degree in sociology, so she is no pushover. She understood how the family dynamic would be upset, and she understood that she would lose approval, admiration, and respect. Sara said later that while she grasped intellectually what her announcement meant, and she knew emotionally and financially that this was the correct thing to do, the reality was very hard. Strong peer pressure from her family literally kept her awake the whole night before. She told me, “As I lay in the dark, I was afraid, like a little twelve-year-old girl yearning for approval from her daddy.” The courage to address what may seem like a small issue was a huge breakthrough for Sara. That Thanksgiving her heart had a Total Money Makeover, and she was not going to be led into well-dressed poverty by peer pressure anymore.
Our financial makeover began in March 2008, when we bought a copy of The Total Money Makeover while on vacation. I read the foreword aloud to my husband as we drove home, and he asked me to continue reading. Four hours later, my voice was hoarse and tired, but we were still reading as the family minivan pulled into the driveway! We were hooked and energized. It felt like our whole world had just been lit up!
That same night, we pulled out all of our bills and made a list of everything we owed. Then, we made a budget. It took hours, but after-ward we were ready to attack our debt! We set a goal to pay everything off in time to celebrate some major milestones that were less than a year away: our fifteenth wedding anniversary and Darrin’s fortieth birthday. At the time, it seemed impossible!
We’ve always had car payments and credit-card payments—there’s never been a time when we were debt-free. We avoided discussing money because it would always end with an argument or someone’s feelings getting hurt. We simply pretended our personal finances didn’t exist.
But with our new plan in place, we went crazy and never looked back. We cut up our credit cards one by one as we paid them off. More important, we got on the same page with our money, which is something we never thought possible!
In 10 months we paid off $58,000 of debt and put $18,000 toward our fully funded emergency fund! We’re teaching our three boys how to save their money and make smart decisions with it. They’ve learned about the dangers of credit cards and how to compare prices on things they want.
Not only are we confident about our financial future today, but we are more excited about it than any other time in our lives. Words can’t describe the burden that has been lifted from our hearts and minds! We’ve really had a Total Money Makeover!
Darrin (age 40) and
Kristin (age 39) Schmidt
Accountant; Stay-at-Home Mom
Everyone has a weak spot like Sara’s. It could be your third-generation failing business that needs to be closed. It could be your clothes shopping. It probably is your car. It could be the boat. Maybe yours is giving to your grown children. Unless you have had a heart-level Total Money Makeover somewhere, sometime in your life, you are still doing something with money to impress others, and that has to change before you can get on a real plan to fiscal fitness. The Bible states, “Godliness with contentment is great gain” (1 Tim. 6:6 NKJV). Those of us who have had a Total Money Makeover still know where our Achilles’ heel is and still see that weak spot as a fatal wound if we allow it to grow again. What is the one “money thing” that makes you grin inside when you see others admiring it? Do you need to give it up to break that feeling inside you? Until you recognize that weak area, you will always be prone to financial stupidity on that subject.
My weak spot is cars. After starting with nothing and becoming a millionaire the first time by age twenty-six, I had the eye of my heart set on a Jaguar. I “needed” a Jaguar. What I needed was for people to be impressed with my success. What I needed was my family raising an eyebrow of approval based on my ability to win. What I yearned for was respect. What I was so shallow to believe was that the car I drove gave me those things. God used the whole story of what I drove to give my heart a Total Money Makeover in the area of peer pressure.
Totally Broke and Driving a Jag!
As I was going broke, losing everything, I kept the Jaguar by refinancing it repeatedly at different, friendlier banks. I even went so far as to get a good friend to cosign a loan so I could keep this image car. I couldn’t afford to keep up the maintenance on the car, so it began to deteriorate. It ran poorly and wasn’t reliable, but I still loved it and hung on. Within the year of our bankruptcy, we were so broke that our electricity was once cut off for two days. I have often wondered what the guy from the electric company thought as he stood in the driveway next to my Jaguar and pulled my electric meter. That is sick. The car continued to deteriorate, and the main seal on the oil pan cracked. This caused oil coming out the back of the engine onto the muffler to burn. The burning oil, lots of it, created a smoke screen for miles behind me everywhere I went. The bid to fix it was $1,700, and I hadn’t seen an extra $1,700 in months, so I just kept driving my James Bond smoke-screen mobile. Finally, my friend got really tired of making the payments he had cosigned for and gent
ly suggested I sell my precious car. I was mad at him. How dare he suggest that I sell my car! So he quit making the payments, and the bank not so gently suggested I sell the car or they would repo it. I tried to stall and only came to my senses and sold the Jaguar on a Thursday morning because the bank assured me they would take it on Friday. I was able to work my way through the mess, pay the bank and even my friend back, but the process was humiliating. Because I was too stubborn to address what that car represented in my life, I caused much damage that was avoidable.
An interesting footnote about how healing can occur on your weak spot: I was so disgusted with myself when I woke up and realized the depth of my stupidity that I swore off my drug, cars. I went to abstinence, meaning I didn’t care what we drove or what it looked like as long as we were winning in our Total Money Makeover. Fast-forward fifteen years. We had become wealthy again, and I decided to get a different car. I’m always looking for a one- or two-year-old car, I’m always paying cash, and I’m always looking for a deal, not really caring what car it is. I was kind of looking for a Mercedes or a Lexus, but I was really looking for a steal. A friend in the car business called me with a deal—on a Jaguar. So all those years and tears later, when it was no longer the driving force of my approval rating, God allowed a Jaguar back into my life. He returned what the locusts had eaten, but He only did so when it was not my idol. Rumor has it that God doesn’t like us to have other gods in our lives.