The Total Money Makeover: A Proven Plan for Financial Fitness

Ramsey insists that those who attempt the Total Money Makeover plan need a budget, a written monthly plan that dictates how all income will be allocated to different life expenses. Ramsey praises American pastor John Maxwell’s statement that “a budget is people telling their money where to go instead of wondering where it went” (62). The book includes budgeting forms and a Financial Peace software program to help people do the practical work of creating a budget.

Debt is money owed to another person or entity, incurred by borrowing money from individuals, through loans, mortgages, and overspending with credit cards. Ramsey universally condemns debt as the greatest obstacle to wealth facing most people because money spent on debt payments cannot be invested or even merely saved. Debt usually accrues interest, sometimes at high rates, which means people end up paying far more than the amount they initially borrowed. Getting out of debt is Baby Step Two in the Total Money Makeover plan because being debt-free is foundational to building wealth.

The “Debt Snowball” is Ramsey’s recommended method for eliminating debt in Baby Step Two of the Total Money Makeover plan. The Debt Snowball begins with the paying off the smallest debt and eventually reaching the largest, with the money that formerly went into payments on the smaller debts accumulating to reduce the larger debts faster—Ramsey likens this gaining of momentum to the image of a snowball getting bigger as it rolls downhill.

An emergency fund is money saved for emergencies. Baby Step One of the Total Money Makeover plan is establishing an emergency fund of $1,000, and Baby Step Three is increasing that fund to cover three to six months of expenses. Ramsey emphasizes having a correct understanding of what counts as an emergency and keeping the fund liquid rather than inaccessible. He assures readers that an emergency fund is essential because emergencies will happen (Murphy’s Law), and acquiring more debt is not an option.

This is Ramsey’s preferred term for describing the behavior and attitude he believes people must have to succeed at the Total Money Makeover plan. The term references a biblical metaphor in Proverbs 6:5 for escaping debt: “Free yourself, like a gazelle from the hand of the hunter.” Proverbs 6 is titled “Warnings against Foolishness,” and Ramsey follows the Bible in describing debt as foolish behavior. Gazelle intensity involves focus, determination, passion, and, of course, effort.

Mutual funds are investments that pool money from many investors to purchase a collection of financial assets. Stock mutual funds purchase stocks, and bond mutual funds purchase bonds. Ramsey recommends investing in Growth and Income, Growth, Aggressive, and International stock mutual funds.

Ramsey calls his simple, seven-step plan for financial success the Total Money Makeover. Ramsey explains that the Total Money Makeover plan is as much a personal challenge as it is a financial challenge—it is not a magic formula for easy wealth, but he promises it works for those who commit to it.