Total Money Makeover: The Plan I Followed for Financial Freedom

Looking to transform your finances and achieve financial freedom?

After dental school, I was $300k in student loan debt. The worst part was that my job offer fell through, forcing me to open a practice from scratch.

Our finances were all over the place, but luckily, I’d read some of Dave Ramsey’s material and listened to his radio show for financial advice.

His book, “The Total Money Makeover,” offers a solid, step-by-step guide to help you take control of your money. It helped us tremendously.

This personal finance book outlines seven practical steps (Baby Steps) that can lead to financial security and peace of mind.

Check out this video to learn more about them:

Whether you’re drowning in debt (like we were) or just looking to fine-tune your finances, “The Total Money Makeover” can help you build a secure and prosperous future.

Key Takeaways:

• Start with a Starter Emergency Fund: The first step in Dave Ramsey’s plan is to save $1,000 for a starter emergency fund to handle unexpected expenses.
• Pay Off All Debt Quickly: Focus on paying off all non-mortgage debt, like credit cards, student loans, and car payments, to build a solid financial foundation.
• Build a Fully Funded Emergency Fund: Once debt-free, save 3-6 months’ worth of expenses for a fully funded emergency fund, providing security against financial troubles.
• Invest and Own Your Home: Invest 15% of your household income in retirement funds and work toward a paid-for house to grow wealth and achieve financial peace.
• Tailored for All Income Levels: The Total Money Makeover provides practical advice for anyone looking to take control of their finances and improve their net worth, regardless of income level.

Understanding Your Financial Situation

One of the first questions I ask my coaching clients is about their current situation. It doesn’t take long to understand why they’re in the financial mess they’re in because they don’t know where they’re starting from. 

Here’s what I recommend.

Start by looking closely at your:

• take-home pay
• expenses
• debts

Make a list of all income sources and monthly expenses. This will give you a clear picture of where your money is going.

Track your spending for a month to see where you can cut back.

Create a budget and stick to it. A budget helps you control your finances by ensuring you spend within your means.

Building an emergency fund is important and we’ll talk more about it shortly.

This step creates peace of mind and prepares you for larger financial goals.

Debunking Money Myths

Many people believe certain myths that can hurt financial health.

One common myth is that debt is necessary to build wealth. In reality, avoiding debt is key to financial success, and if you know anything about Dave Ramsey, you will find that he is anti-debt.

Credit cards are often seen as essential. While they can be useful, relying on them can lead to high-interest payments.

Another myth is that you need a high income to be financially secure. It’s more important to manage what you earn properly.

You can achieve financial stability by following a proven plan and avoiding these misconceptions.

Understanding the realities behind these myths will empower you to take control of your finances and work towards financial health.

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Dave’s Seven Baby Steps Plan

Dave Ramsey’s Total Money Makeover Plan is built around the Seven Baby Steps. These simple steps guide you toward financial security by paying off consumer debt, saving for unexpected expenses, and planning for the future.

Each step builds on the previous one, creating a clear path toward financial freedom.

Baby Step 1: Save $1,000 Emergency Fund

Your first task is to save $1,000 as quickly as possible. This initial emergency fund will act as a cushion for unexpected expenses, like car repairs or medical bills.

Setting aside this money helps you avoid going further into debt when surprise costs arise.

To quickly accumulate this amount, consider cutting back on non-essential spending, taking on a side job, or selling unused items around your home.

Baby Step 2: The Debt Snowball

Once you have your $1,000 emergency fund, you can tackle consumer debt using Dave’s Debt Snowball method. You’ll likely be in this step the longest of all baby steps.

The Debt Snowball method requires listing all your debts from smallest to largest. Focus on paying off the smallest debt first while making minimum payments on all other debts.

Once the smallest debt is cleared, move to the next one on your list. This process creates momentum and keeps you motivated as you see debts being eliminated individually.

Baby Step 3: Complete Funding The Emergency Fund

After eliminating consumer debt, your goal is to build a fully-funded emergency fund.

Aim to save three to six months’ worth of expenses. We chose 12 months as it all depends on your comfort level.

This larger fund offers a stronger safety net for significant life events, like job loss or major health issues.

Automated savings can help you accumulate this amount more easily. Having this financial cushion can provide peace of mind, knowing you are prepared for whatever comes your way.

Baby Step 4: Invest 15% of Your Income in Roth IRAs and Retirement Accounts

A common question Dave Ramsey gets about this step is: “Why should saving for retirement come before saving for our kids’ college?”

As parents, it’s natural to want to put our kids first. I get it—I’m a dad, too. I’d do anything to help my kids (up to a certain point 🙂 ).

But think about this: if you prioritize saving for college over saving for your retirement, you might not have enough money when you retire.

That could mean you’d have to rely on your kids to take care of you. 

That’s why, before doing anything else with the extra money you have after paying off debt, Dave recommends investing 15% of your income in retirement accounts like a 401(k), Roth IRA, or 403(b).

Investing 20% or more of your income into retirement is even better for those earning a high income. If you can’t, that’s okay—but if you can, you’ll reach financial freedom sooner.

Baby Step 5: Save for Your Kids’ College

By the time you get to this step, you should:

• Have an emergency fund that covers 3-6 months of expenses.
• Be debt-free (except for your mortgage).
• Be investing at least 15% of your total income for retirement.

Now that you’ve sorted your finances, it’s time to start saving for your kids’ college.

Dave suggests using 529 plans and Coverdell Education Savings Accounts (ESAs).

These special accounts offer tax benefits when you use the money for education expenses.

Baby Step 6: Pay Off Your Home Early

By this point, Dave Ramsey suggests using any extra money you have—after completing the earlier Baby Steps—to pay off your mortgage as soon as possible.

There are two sides to this debate.

Some people argue that investing that extra money is smarter than paying off your house early.

Those who think this way usually look at the numbers and potential investment returns.

However, when we decided to pay off our mortgage, it wasn’t just about the math—it was about peace of mind. There’s nothing quite like the feeling of pulling up to your house every day, knowing it’s fully yours. It even made the grass feel different!

When we hear people criticize the wealthy or talk about the so-called “evil 1%,” we remind them that many successful people got there through hard work and often use their money to do a lot of good for others.

We teach our kids that success will bring some “haters,” but they should remember that the more money they earn, the more people they can help.

And this brings us to the final step, Baby Step #7…

Baby Step 7: Build Wealth And Give Generously

If you’ve made it to Baby Step 7, congratulations! You’re completely debt-free and can now focus on growing wealth and helping others. Dave Ramsey calls this the time to “Live and give like no one else.”

Dave wants us all to reach financial independence, which means being able to do what we want, both for ourselves and for others.

As the Bible says in 2 Corinthians 9:11: “You will be enriched in every way so that you can be generous on every occasion, and through us your generosity will result in thanksgiving to God.”

2 Corinthians 9:11  “You will be enriched in every way so that you can be generous on every occasion, and through us your generosity will result in thanksgiving to God.”

Building Wealth

At this stage, you’re in a great financial position: you have no debt from credit cards or loans, an emergency fund that covers 3-6 months of expenses, you’re investing at least 15% of your income for retirement, you have college savings set up, and your mortgage is fully paid off.

With all this in place, you can now use any extra money to grow your wealth even more.

Dave Ramsey suggests investing in things like mutual funds and real estate.

UPDATE

For the first ten years of my dentistry career, I followed Dave’s plan exactly as he laid it out. But then, I injured my hand while snow skiing, and I had a big wake-up call.

I realized that if my only income source were my dental practice, I wouldn’t have a way to support my family if something happened to me.

Real Estate Syndications

That’s when I got interested in real estate, especially real estate syndications.

Syndications let you focus on your main job while investing passively in real estate. This helps you start replacing your regular monthly expenses with passive income, so if anything ever happens to your active income, like your job, you’re still financially secure.

These days, my main focus is on RV parks and mobile home parks. If you want to learn more, check out these two videos:

Staying Motivated Towards Financial Goals

Staying motivated is key to achieving financial goals.

A motivational speaker or mentor/coach can provide the encouragement you need.

Breaking down large financial goals into smaller, achievable tasks can make the process less daunting.

Regularly tracking your progress is extremely important.

Use financial apps or spreadsheets to monitor your debt reduction and savings growth.

Setting up milestone rewards can help maintain motivation. These rewards should be simple and inexpensive, like a movie night or a small treat.

Encourage accountability by sharing your goals with a trusted friend or family member who can offer support and celebrate your milestones with you.

Keeping a positive mindset and remembering why you started this journey can help you persevere through tough times.

FAQs

What are the key steps outlined in ‘The Total Money Makeover’?

Dave Ramsey introduces the “Seven Baby Steps” to achieve financial health.

These steps include creating a budget, building an emergency fund, paying off all debt using the debt snowball method, investing for retirement, saving for college, paying off your home early, and building wealth through investments and charitable giving.

How does ‘The Total Money Makeover’ differ from other personal finance books like ‘Rich Dad Poor Dad’?

While “Rich Dad Poor Dad” by Robert Kiyosaki focuses on building wealth through investments and entrepreneurial ventures, “The Total Money Makeover” emphasizes eliminating debt and creating a solid financial foundation.

Ramsey’s approach is practical and step-by-step, targeting those looking to escape debt and build lasting financial health.

Can ‘The Total Money Makeover’ principles be applied to debt management, and if so, how?

Yes, the principles outlined in “The Total Money Makeover” can effectively be applied to debt management.

Ramsey advocates for the debt snowball method, where you focus on paying off the smallest debts first to build momentum.

This approach helps you gain confidence and control over your finances.

What are the essential lessons one can learn from ‘The Total Money Makeover’?

Key lessons include the importance of budgeting, living below your means, and the power of an emergency fund.

The book also stresses the significance of long-term financial planning through investments and the benefits of eliminating debt to achieve financial freedom.

Is the workbook that accompanies ‘The Total Money Makeover’ a valuable tool for financial planning?

The workbook complements the main book by providing practical exercises and worksheets.

It helps you apply the concepts from the book to your own financial situation.

Many readers find it useful for tracking progress and staying committed to the Baby Steps.

What significant changes does one experience by following ‘The Total Money Makeover’ plan?

Following the plan can result in a debt-free lifestyle, improved financial security, and better money management skills. You may also experience reduced stress related to finances. Plus, a clearer path towards achieving long-term financial goals, such as retirement or purchasing a home.