Guest Contributor

Dave Ramsey’s Total Money Makeover

By | John Preston

He was born in Antioch, Tennessee. He graduated in 1982 with a degree in finance and real estate from the University of Tennessee Knoxville. After his bankruptcy, Dave Ramsey set out on a quest to discover how money really works, interviewing wealthy people, reading as much material as he could on the subject, and recording the financial principles taught in the scriptures around proper money management.

Today, Dave Ramsey is not only the author of numerous bestsellers that came later, but he is the most respected personal finance expert in the United States and the host of the radio program The Dave Ramsey Show. , a show played on more than 500 radio stations and with an audience of more than 12 million people every week.

I hope you enjoy this summary, as I always say; use it as a guide but be sure to read the entire book:

The total transformation of your money was published for the first time in the year 2003. It is a book written in a very simple and entertaining way, full of personal anecdotes and testimonials from real people who applied his teachings and achieved success in their finances.

Dave presents in his book the 7 baby steps, as a metaphor that teaches that we can all get where we want step by step, but before that, Dave talks about certain obstacles that do not prevent us from transforming our personal finances.

Step 1: $1,000

The first baby step Dave suggests in our total money makeover is to save $1000 to start our emergency fund. No matter how dire our financial situation? Yeah. The first thing the book suggests is to do this.

And to achieve this, the first thing we must do is budget each month, to close the faucet through which our money is escaping, preventing us from continuing to spend more than we earn.

The second thing that we must do is give priority to the basic needs of our family, such as housing, food, health, public services and once these needs are satisfied, then we must face the creditors, establishing agreements of I pay with them.

How can you save this amount having low income problems and also debts?

  • Getting a new job or working overtime.
  • Selling crafts, giving classes at home or delivering pizzas.
  • Holding garage sales, which are very effective, of things we no longer use.
  • Or collecting money owed to us.

Once we have already accumulated the $1,000 dollars, we must keep them safe from ourselves, that is, they are not so close at hand under the mattress or on our nightstand, because we will end up spending them.

Dave’s recommendation in this regard is that we open a different savings account than our payroll account or our business account or a liquid fund where we can have access to that money in case of a true emergency, like illness, damage to our vehicle or being left without a source of income.

Step 2: SNOWBALL – Get out of debt

And what is the snowball system? It is a method to pay our debts by making capital payments starting with the smallest debts until eliminating them and continuing with the largest ones, except for the mortgage payment.

First, making a list of all the debts in order from the smallest to the largest and preparing the initial snowball, which consists of accumulating as much money as possible to make a down payment on the principal of our debts. To do this, we can also use the garage sale to finance this first effort.

Then, assign a higher value in our budget to pay our debts, greater than the value of the minimum monthly payments that we must pay on them. For example, if the sum of the minimum payments of our obligations add up to 300 dollars, we will allocate $500 in our budget to pay them.

And finally apply the payments in a systematic way: This is to apply the initial snowball plus the additional item in our budget, such as a payment to the capital of the smallest debt until it is eliminated and continue with the next largest one and so on every month until it ends. with all of them.

Dave affirms that sometimes to start the snowball, you have to blow up the budget, that is, sell precious objects, jewelry, the car and even the house, if the monthly payments are above 45% of our income monthly and in this way make the snowball wipe out the debts more quickly.


The third baby step is to strengthen our emergency fund by accumulating between 3 to 6 months of monthly budget.

Dave mentions that when we have a robust emergency fund, unexpected events stop happening and when they do come they are no longer misfortunes, but easy to solve inconveniences, since we have the liquidity to deal with them.


The fourth baby step will be to invest 15% of our gross monthly income in our retirement fund, call it 401K, or mandatory pension fund.

Dave recommends the 15% rule, that is, save 15% of our gross income, without taking into account the money that is deducted from us due to taxes.

Dave also says that before we focus on paying off the mortgage quickly, it is better to save in our retirement funds, because it is better to arrive at retirement with a fat fund and perhaps be paying off the house than to reach that stage with the house paid off. but with no money in our retirement fund and having to mortgage the house in order to eat.

Dave recommends investing your retirement money in Mutual Funds that invest especially in stocks, which over the long term have been shown to return 12% each year, despite market volatilities.


The fifth baby step that Dave Ramsey presents is saving for our children’s studies.

Dave always recommends paying cash for our children’s education. If we do not have the resources, it is not convenient to continue.

Dave does not recommend prepaying for our children’s education through education insurance, since the money you must give from the beginning is extremely high and also the profitability is extremely low, in other words, it is placing our money in someone else’s pockets , without charging practically no interest.


Baby step number 6 is now whether to focus on quickly paying off our mortgage.

Sometimes we don’t want to quickly pay off the mortgage, because it gives us tax benefits, but we don’t realize that the tax savings are much less than the interest payments we have for keeping it.

Dave teaches us that it is absolutely possible to pay 100% of the mortgage in 7 years. This may sound impossible to many, but when we have our debt-free income, we can focus and pay off our agreed 15 or 20-year mortgage in just 7.


Once we have built and strengthened our emergency fund, we have released our income because there is no longer a mortgage payment, there is no car payment, we are not under the control of any credit card, we are saving 15% of our income in our retirement plan, we have a fund for our children’s studies, and we live on a budget, we have reached the most fun point of the total transformation of our money and it is baby step number 7: Build wealth and share it.

Show More

Related Articles

Back to top button