Monday, February 20, 2012

On Dave Ramsey and the Total Money Makeover

This week's book learning is from 'The Total Money Makeover' by Dave Ramsey -

Ramsey's Total Money Makeover strategy is as follows - (The assumptions here are based on an average American income of US$3,500)

1. Build an Emergency Fund: Save $1000 (or 1/3rd of your income to start with..) every month until you have an emergency fund. An emergency fund is when you have enough money to survive 6 months. Keeping this fund is priority one!

2. Debt snowball: Pay off all your debts: List down all your debts (if applicable..) and then begin paying off the smallest debt. Forget interest rates. Just focus on crossing off the first debt and build momentum. Motivation is more important than math!

3. Invest 15% of your income: Dave's investment style is mutual funds. The principle here is to invest 15% of your income. There's more on mutual funds on his website, for those who'd like to know more! (I don't know much about this as yet)

4. College Fund: Invest $200 per month per kid! (If applicable)

5. Pay off your mortgage: Pay off your mortgage! :)

Other Basics: Buy insurance, buy second hand cars and focus on living frugally, use debit cards, do a budget every month - make sure every dollar spent is accounted for!

The Goal: To live off your investment income. That's the day you are financially independent.

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I read Dave's book thanks to a snippet on the Debt Snowball in 'Switch'. Managing money is something I'm beginning to think about. And it came at a right time. I loved Dave's catchphrase

'If you live like no one else, you will live like no one else.’

i.e. if you live frugally like no one else, one day you will actually be able to do whatever you like! Good book. Hope you enjoyed the simplified version..

Here's to 'living like no one else' this week!

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