Originally written by Dave Ramsey
Chapter 1: The Beginning
Dave Ramsey goes from college student, to $4 million dollars, to bankrupt. He decides to counsel the average consumer about finances. His wife Sharon shares how they wanted peace more than they needed the money.
Chapter 2: Enough of Anything is too much
Dave lists several statistics about the debt crisis in America. Debt has begun skyrocketing, especially since the mid 20th century. The majority of people in debt are middle-class Americans with college degrees. The problem, Dave suggests, is our inability to be disciplined and post-pone gratification. He wants us to get mad that “stuff” is controlling our lives, and we’re not in control. Sharon, his wife, recounts how she use to want, and her husband would say that she would then only want more and more if she immediately got what she wanted.
Chapter 3: The Basics
Most Americans are ignorant of money and how to handle it. Then they start collecting debt and loans and are ignorant of how those work too. Money is always moving, and money is neither good nor bad. Money doesn’t make a person valuable.
Chapter 4: Understand Spiritual Aspects of Money
Who you are is reflected in what you do with your money. If you are self-disciplined, you will be good with your money. If you are selfish, you’ll have a lot of things you can’t afford.
Peace Puppies* are habits that if trained, become loyal companions. If untrained, they can become wild and uncontrollable. Two peace puppies mentioned in this chapter are: 1) It’s okay to have nice things, it’s not okay to worship and work for (like a servant works for a master) those nice things. 2) When you do have money, or when you don’t have money, make sure you give to others.
Chapter 5: Let the Buyer Beware
Buyer Beware got its meaning from real estate. The seller would pay the commission of the real estate agent, but it was the buyer who ended up paying for both if he wasn’t careful. The buyer had no one on his side to negotiate. Dave overviews how much money is spent into selling products—business from candy bars to luxury cars are throwing tons of money into getting the buyer to buy their product. We get a rush from buying something big. We also feel a remorse, or regret, after big purchases. Sellers know this and will use this against you. Dave tells us that we have to be some what familiar with their techniques, and learn to say ‘no.’ He gives us this advice:
We have the power to say ‘no.’
Consider the motive in why we’re buying what we’re buying. Do we need it? Or are we just wanting to show off?
On big purchases, wait. Sleep it over. Take your time. Make sure it’s something you are committed to.
Look for cheaper deals and seek counsel.
Chapter 6: Career Choice
Pick something you’re good at, and work hard at it. The harder you work at something you’re good at, the better at it you’ll be. The better you’ll be, the more you’ll enjoy it. The more you enjoy it, the harder you’ll work. Eventually you’ll get paid more for it. The reverse is true. If you do something you don’t enjoy, you won’t be as creative with it, you won’t work as hard, you’ll stagnate, you won’t be as happy, and you won’t make as much. To be successful you just have to work harder and smarter than everyone else, is essentially what Dave is saying. If you aren’t in a field you like right now, start making changes today (but keep your job).
Chapter 7: Lifestyles of the rich
Don’t keep up with the Joneses. As your income goes up, don’t let your spending go up. Sharon gives four bits of advice:
Create a budget
Don’t overspend
Stick to the budget
Save, Save, Save
Chapter 8: Dumping Debt
Banks sell debt. Get out of debt and avoid all debt (except, maybe, a house). Credit Cards, Auto Loans, Finance Services, Loaning money to a friend, and co-signing. Avoid all of them. If your car gets repossessed, the bank can then go into your house and take whatever is of value. The collectors or bank can cling onto your bank account and take the majority of your paycheck from you until the debt is paid off. They own you until it is paid off. Moreover, you will be paying way more than what the item is worth. Only borrow on something that can go up in value. If you are in debt, stop borrowing. Then, apply the debt snowball. The debt snowball pays off the smallest debt first, then adds that money to the second smallest debt. That pattern is continued until all debts are paid for.
Chapter 9: Cucumbers, Collectors, and Credit Reports
Because of the Fair Trade Act in 1977, there are laws regulating how debt collectors can and can’t act. If you feel like they are bullying/harassing you, they may be in violation of those laws. Moreover, you can request that credit score companies show written proof that your credit statement is accurate. There are credit cleanup companies, most of them are just con artists looking to make a quick buck.
Chapter 10: Pile Up Plunder
Most Americans only save about 2% of their after-tax income. The Japanese save almost 30%. Compound interest works so well, that you could invest $2000 from age 19-26 and ear nearly $2 million by the age of 63. Or if you owe money bc of compound interest, that can work against you.
Chapter 11: "KISS" Your Money
Don’t invest in anything you don’t fully understand inside and out. The best form of life insurance is term life insurance because it doesn’t bet against you dying. There’s a 45% better chance of throwing darts at stocks than the experts making money on them, so unless you invest full time, don’t consider yourself an expert. Don’t invest in real estate until you have enough money to cover the expense of vacant or bad renters. A common way for people to invest in money is mutual funds.
Chapter 12: Of Mice and Mutual Funds
Dave gives counsel on how to invest in mutual funds. Basically, they should beat the rate of inflation ( about 4% a year), and have a solid record of at least 5 years. Generally, it takes them for that long to see how well they’ve done. Moreover, you can choose who you invest in if they have good growth in one fund, multiple funds, have a 1.0 beta or more if it’s aggressive, or less than 1.0 if it’s calmer. Compare also to how much their expenses is. The best way to invest in mutual funds is to start off with growth and income based funds if you have under $10k to invest. If you have between $10-$50k, invest in each different type. If you have more than $50k to invest, then you should have 3 or 4 of each type. The kinds of mutual funds are growth, growth and income, aggressive growth, and international. Dave encourages people to invest in retirement and to look into pre-tax investing options like Roth IRA’s.
Chapter 13: Buy Only Big, Big Bargains
There’s big fun in big bargains. The best way to get bargains is to negotiate everything, know where to look for them, and have patience. Dave gives us 7 principles in negotiating.
Tell the truth: Your integrity is worth more than a bargain
Use Cash: Cash in hand is worth better than a check book, and you can usually get a cheaper deal on it
Walk away power: Be prepared to walk away from a bad deal. Some people will change terms right before someone signs a contract because they know some people won’t walk away from it
Say, “that’s not good enough”
Good Guy/Bad Guy: Say “My Wife/husband/boyfriend/girlfriend/cousin will kill me if I…”
Give and take: Sometimes you can get good deals if you exchange favors. If you do or buy for x, they’ll give you x in return.
(Psst. Check out my Book Summary for Never Split the Difference, a book by the FBI's top hostage negotiator.)
Where to buy?
Individuals—less motivated by profit, have less of a defense against walk-away power
Auctions—can get cheap cars
Classified ads
Coupons
Real Estate foreclosures
Only get good “stuff.” Just because it’s at a bargain, doesn’t mean it’s good. And just because it’s good, doesn’t mean you can’t get a bargain.
If you wait and save up a lot of money, but get buyer’s fever, you’ll miss the best buy. When you get the fever, you lose all patience and negotiating power.
Chapter 14: Single as a One-Dollar Bill
Singles have a lot of independence (if they don’t have kids). But that freedom is often unbridled by impulse, fear, or grief. They need to budget their money and stick to that budget. They also need to seek financial counsel from mentors.
Chapter 15: Tying a Knot in Your Money: Marriage
Statistically speaking, you need to agree on four things to have a great marriage: money, religion, in-laws, and how to raise your kids.
People feel differently about money in different ways. Some people feel better spending money, some people feel better when they save money. There are some people who enjoy creating budgets, there are some people who feel it too restricting. A good tactic in marriage is to have one person create the budget, then have them listen as the other one gives honest feedback. Both need to be open in communication about their feelings and desires when it comes to how money is spent, saved, made and invested. He talks about what men and women (generally) value. Men value adventure, games, and rescuing the beauty. Women value communication and quality of relationships. If your spouse is having trouble listening when it comes to making changes in how you handle money, Dave recommends appealing to these value systems. Example: “Honey, it would be really romantic if you helped me make a budget.” “Honey, when we aren’t following our budget, it feels like the kids are being kidnapped right in front of us and there isn’t anything we can do to stop it.” “Babe, I read that doing a budget together increases communication and intimicy in partners. We should try doing that.” When appealing to your partner, it’s important to never blame, and always open and close with what they are doing good.
Chapter 16: Crumb Snatchers and money
By not teaching children at a young age about finances, you are not giving them the tools they need in life to succeed. There are four areas of money kids need to be fluent in: Work, Saving, Spending wisely, and Giving. Dave has recommendations for different age groups:
Between 3-6: They should be getting praise for any work they do. They should get a small allowance for some chores, and no allowance for some chores that pertain to being a part of the family. They should learn to save that money for maybe a toy that they want, so they should also feel and learn to associate what it means to spend money on something. They should also be praised for any amount of giving that they do.
Between 6-14: They should be getting paid a little bit more, and they should also be doing more. They should be aware that Mom and Dad aren’t going to pay for everything that they want. For example, they should pay for tires and car insurance. So they know not to go over the speed limit and they should know not to peel out their tires. Dave matched what they saved dollar for dollar for the car of their choice. If they saved $4500, Dave gave them $4500.
14 & up: Dave started to give them a set allowance for the month. Once they lost that amount of money, that was it. Also, he opened up a checking account for them with a debit card.
Dave emphasizes that just because they have control over their money, Dave is still the parent in their life. He still says “no, you can’t get your tongue pierced.” And “you still have to keep up with your grades” and “no, you can’t stay out that late” etc, etc. Having them earn and pay for something encourages in them a sense of pride and also gives the parent great satisfaction. One of the greatest feelings is having their children give freely of what they earned.
Chapter 17: Family, Friends, and Money
When it comes to borrowing, loaning, or giving money to friends and family, it’s not a money issue, it’s a boundary issue. Unsolicited advice can come across poorly. Large, unsolicited, monetary gifts to people who are struggling may come across as an insult. People who keep asking for money, but don’t take advice shouldn’t be loaned money. When someone asks money of you, you should set terms and conditions and be firm with those terms and conditions. It’s in the best interest of your relationship to set, and abide them.
Dave suggests to not give council unless it is solicited, but he gives two ways around that. 1. Ask them that if you are ever doing anything stupid, if they would call you out on it. If they agree and ask the same, you’re in. You can also let them know what you are feeling. 2. You can bring up your own failures and talk about what helped in that situation. By listening to your shortcomings, someone else might feel comfortable sharing theirs as well.
Chapter 18: Carefully Consider Counsel
We should seek counsel from our spouse, our parents, from experts, and from our religious leaders. Often, people fail because they don’t take any council. When we are conflicted with differing opinions from any of these, we should take them time and consider each one. It takes faith and trust and humility to ask for advice and to consider it.
Chapter 19: Why Written?
Budget, or rather, make a cash flow plan. 90% of Americans don’t have a budget. Dave suggests 3 simple things to avoid a life of heartache. 1. Keep track of all your purchases, know how much you’re spending on what. 2. Write it down. Here is the famous envelope system comes into play. Put cash into itemized, labeled envelopes and only spend the money that’s in that envelope for that purpose. For example, have an envelope labeled groceries, with $100 in it. You will now only spend $100 worth of groceries. Adjust your envelops and your budgets as needed, but stick to it. 3. Do it for 90 days. Anyone can do it, you just need to make it a habit and commit to it. Do it.
Chapter 20: Do it Daily?
Wake up 30 minutes early each day and reflect on your life, where you want to go, and what you need to do that. Reflect on how you’ve been doing. That way, when something does come up, you can stay focused on what you want. Also, take that time to connect with God. That’s an extra resource that we have available, to have a relationship with Him.
Chapter 21: Baby Steps
Take baby steps. Dave gives a step, by step guide to financial peace
Get a $1000 emergency fund, paying the minimum on debts owed
Use the snowball effect and pay off all debts, except house payment
Collect 3-6 months of expenses in savings
15% of your income should be in retirement plans. For example, start funding 401k, 403(b) or Roth IRA and make sure you have full coverage insurance.
Start college funds for your kids and
Pay off your house
Build wealth by investing in real estate, mutual funds, or other intelligent ways
Dave councils not to skip a step, otherwise you’ll fall and end up with financial broken bones and hurt egos. He also says that how much and how often to give should be determined by the person who owns the money.
Chapter 22: The End... or Just the Beginning?
Financial peace requires sacrifice, discipline, and patience. Peace does come from manipulating and having control over “stuff”, but there is a greater peace in Jesus Christ. The road ahead looks bumpy and tough, but you can do it.
Peace Puppies*
Don’t let stuff control your life/ don’t work for stuff
Give money away to good causes
Develop your own power over purchase
Find what you’re good at, and work hard at it
Live below your income
Sacrifice now, have peace later
You can always spend more than you can make
The borrower is servant of the lender; so beware
Check your credit report at least once every two years
Correct your credit report yourself
Control your financial destiny, don’t let someone else do it for you
SAVE MONEY
KISS when investing money
Save for retirement
Save with pre-tax dollars
Negotiate
Find great buys
Be patient with great buys
Singles: create a written plan
Singles: look for a money mentor and an older, accountability partner
Singles: don’t be impulsive with your money
People view money differently, so be sensitive to those differences
Work together with your different strengths
When you can agree on spending, you create unity in your marriage
Teach children to work, save, spend wisely, and give
The best work you can do is create wise, competent children
Giving loved ones money at their request may not be best for them
Making decisions based on fear of reprisal can be a sign of co-dependence
Be strong enough to help others, and strong enough not to
Listen to your spouse’s counsel
Seek experienced counsel
Keep your checkbook on a timely basis
Create a budget, stick to it
Commit to it for 90 days
Prioritize your daily life
Keep your spiritual life healthy
Take baby steps