Total Money Makeover

June 5, 2008 · 2 comments


So I bought Dave Ramsey’s book “The Total Money Makeover” and just recently finished it. If you haven’t read it and you have little knowledge of the financial world I highly recommend picking up a copy. For those that are more finance savvy, you have probably heard everything this book brings to attention. As I continue on my journey to financial freedom I can’t help but disagree with two pieces of advice Ramsey gives.

While I understand why he discourages the use of credit cards, it just seemed too radical for me. If you have read through my earlier posts here then you know I am a big fan of using my credit card for any and all purchases I make. Throughout the whole book, Ramsey instructs everyone to cut up their credit card. Broke like a joke or Rollin’ in the dough, Ramsey says cut up the card and pay cash for everything. I will definitely be ignoring this recommendation. My credit card is free cash for one month and airline miles in my pocket. I’m pretty sure if I went to the grocery store and wrote them a 30 day I.O.U. and requested frequent flier miles in exchange for my groceries the clerk would kindly ask me to leave the store. With my credit card I can do just that. Ramsey and I are both advocates of discipline. He advocates discipline in debt repayment, spending habits, giving, etc. I just don’t get why he doesn’t mention that, with discipline, credit cards are a valuable asset. I wish he acknowledged the fact that credit cards are not a bad thing, it’s the people that use the credit cards that cause problems.

Second beef, paying off all debt (except mortgage) as fast as humanely possible. Again, I understand where Ramsey is coming from, but I completely disagree with this stance. I currently have one, and only one debt to my name. I have a consolidated student loan for $28K at 7% interest. I decided to stretch the student loan out for 20 years to lower my obligated minimum monthly payment in case I ever find myself in a financial bind. With payments of approximately $220 a month my loan will be payed off in 2027…I know pretty crappy. With interest, over 20 years, I will be paying approximately $54k for my education, that’s $26K in interest!!! My education is not worth $54K to me so there is no way I am making minimum payments. I ran some numbers through my calculator to decide exactly how much extra I want to be paying on my loan. I decided I would pay an additional $110 monthly to shorten my loan term and take a huge chunk out of $26k in interest. Making monthly payments of $330 I am able to pay my loan off in half the time and save over $16K in interest.

I’m sure with “gazelle intensity” I could pay off my student loan much faster, but at what expense? Ramsey recommends putting retirement investing on hold until all debts are paid off. If I take this advice and I postpone my Roth IRA funding for two years, while I focused on solely on paying off my student debt, my Roth IRA at 65 would have approximately $2,044,000 in it. If I ignore Ramsey’s advice and contribute to my Roth IRA from now until 65 I would have $2,434,000 in my account. That’s a difference of $390K!!! You better believe I will sacrifice paying an extra $10K on my student loans over the next ten years if it means I will have an extra $390K in my retirement account. Now one could argue that Ramsey’s advice is warranted in that the sooner I pay off my student loan the sooner I will be able to contribute additional income to my retirement accounts and can therefore make up for lost time. Need I remind you though, that Ramsey advises only putting 15% of income in to investments. I currently contribute 18% of my income. I guess this is advice that I NEED to ignore.

Overall I enjoyed my read and thought there was plenty of valuable information, but I wish Ramsey acknowledged that, with great discipline, there are alternative ways to acheive a “Total Money Makeover.” Have you read the book? What do you think? Is there something I’m missing or not picking up on?

Making money,

{ 2 comments }

1 Shane

Based on those points that you call out, sounds like a horrible book. I think credit cards are not only convenient, but are needed to build credit. Plus many provide cash back, it’s like you’re getting a 1-3% discount on lots of stuff.

In regards to paying off debt, I think it depends. If the interest rate is greater than the rate you can get investing the money elsewhere, then pay it off. Otherwise, don’t bother. Taxes muck with the situation a bit if it’s close, but i feel that’s a good rule to follow.

I used to read a lot of books and magazines, but the best advice i’ve received has been from a blog freemoneyfinance.com. I visit it everyday and always get a nugget of great info.

2 One Chance To Live

don’t get me wrong. There is information in this book that is worth reading. I didn’t know much about saving for college for my children so that section was helpful. It was an okay read.

I agree with your debt theory. If my interest rate was upwards of 12% I would allocate my extra income differently.

thanks for your input

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