Hello friends, in today’s article, we see the book summary of The Total Money Makeover by author Daves Ramsay. In this book summary, the author gives the 7 baby steps to achieve financial fitness ( freedom).
Total Money Makeover Book Summary:-
This is one of the best books on finance. this book gives us step-by-step strategies to achieve financial freedom.
the author says, if you want to be financial freedom ( fitness) you should have follow these baby steps
so let’s start, with steps first
1) Creating A emergency Starter Fund:-Total Money Makeover:- Book summary
In these steps, the author recommends using to make an emergency fund.
Because, in everyone’s life, always come the bad times or bad days, everyone should have to develop their own emergency fund.
the emergency fund is very useful now, we see in the Covid-19 situation. so
the author called this bad day, rainy days, So this emergency fund, act like Umbrella on rainy days ( or bad days). examples, you lost jobs lost, family problem, accident, urgent money, requirements. this time you have to have an emergency fund.
This fund you only use, when you have very bad tines so please don’t use it for your vacation or other luxury expense.
In money magazine research found that 78% of people will face major financial problems in 10 years. the author says, In emergency fund, we should keep a minimum of $1000.
if you lose the money for any reason from this emergency account, then fill this fund as much as possible as with the minimum requirement. (Total Money Makeover:- Book summary)
So this is your first goal in to achieve Financial Freedom.
now let’s see the second and third steps to achieve financial freedom
2) Start paying off your debt and grow your emergency fund:-Total Money Makeover
In this step the author says, You have to pay your debt as much possible as the remaining money put in the emergency fund. so nowadays, we live in a society, where people think, loans are common.
If you want anything, then you should buy it, don’t think about it. Whether it is bike, car, home or society say, you can easily pay an EMI loan.
so people say, think about EMI loan later, first buy the luxury things, and enjoy your life.
people say, Buy now pay later.
The author says Millionaire Have a small house, small car, and low expense lifestyle.
but on another side, for the average salary person, those have a decent amount of money. so they buy the big house, big car, and live high expensive lifestyle on the loan ad there latest increase daily. (Total Money Makeover:- Book summary)
People think, these people are rich, but actually they are broke.
In the author’s opinion; a person is financially free when they don’t have any loans.
- Arrange your loan properly
- Start paying off from small loans, for this, the author says this is like the Debt snowball effect.
Example, You have to pay three loans, a) 10,000 b) 50000 c) 200,000
so you should start with a small loan, 10,000 then, you should start what are small loan- 50,000 and then finest what left small loan.
so you use the debt snowball, and you are happy to pay the more loan.
the third piece of advice the author says,
3) Grow Your emergency fund:-
so you have to identify, how much money is required in your emergency fund?
for this calculation, you have to take your income and expense ratios
generally, people say,
so suppose, your salary – 30,000
and your expense – 10,000
then your emergency fund is equal to expense * 6
Rs. 10,000 * 6 = 60,000
then the author gives the best way, so because, you can’t predict the future. (Total Money Makeover:- Book summary)
then the author says, you should multiply with your salary income * 6 times
to make an emergency fund.
so in this example, the emergency fund is
Salary * 6 times
Rs. 30,000 * 6 = 180,000
let’s see the 4th step of financial freedom
4) Invest 15% of your income in Mutual funds for your retirements.
For retirement, we should plane from today. because everyone wants to leave stress free life. and if we can’t do that, then we should become a problem for our family.
so avoid third, the author says, ” you should invest 15% of your income in mutual funds, for your retirement.
Invest in a mutual fund, for the long term especially for retirement so you don’t have to depend on children and you can enjoy your retirement with this money.
so you can invest in a different way.
so you have 15% of your salary in that 15%
-25% growth and income funds
-25% equity funds
-25% international funds
-25% aggressive funds
so if you do the above things, then you don’t lose much money because of diversification, and you get the maximum return.
so now let’s see 6th steps
5) Planning for your children Education:-
Now, you make your emergency fund and 15% investing for retirement plan
now the time comes for Your Children’s Educational Fund.
the author says, ” Your children’s degree education never runs your home, so the author doesn’t give that much importance to a college degree.
In America, a college education is very expensive to get that lots of education loans and when they repay loans they get old. so their whole life is gone to just pay the education loan.
so in the future, education is going more expensive. so if you want your children also get an awesome degree then you have to plan for their education before they are born. (Total Money Makeover:- Book summary)
for this purpose, you can invest in equity funds,
One report of the economic times of India says, the average 16% equity funds performance this return is more than F.D. Generally in F.D. we get the 5 to 8 % return on investment. but in F.D. you have zero return.
but the author recommends we invest in the equity fund, for your children’s education. for the long term.
now let’s see 6th steps
6) Paying off all your Biggest Loans and becoming Debt Free:-
In these steps, the author says if you set all your all funds to get an awesome return. then there is time to come pay your debt-free life.
Your primary goal is to pay your big loan and live a debt-free life. Most of the time home loan is the biggest loan so paying debt with planning secures your life.
now let’s see the last step
7) Grow your Wealth and Give way money (enjoy)
When you pay your all debt, then work come about to grow your wealth. You should spend your time with financial experts, tax advisors, CPA’s wealth management funds, so with help of these people, you can grow your wealth so doing this you can get financial freedom.
the author says, ” you only buy luxury things, that only you afford it.”
so this is all about the Total Money Makeover book summary by Dave Ramsey
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