First, let me say, that if you must take out a loan or go into debt to take the vacation you want, then you can’t afford it. You’d be better off taking a summer vacation within your budget now and waiting to take the dream trip when you can afford it. You don’t want to be stuck working overtime for the next five years to pay off your vacation debt. Here are my other tips for avoiding vacation loans and debt.

Plan Far Ahead
Everyone has a dream trip. Mine was my honeymoon. Thanks to the strong dollar and careful planning, we managed to spend only $3,000 on the ten-day trip, which was covered entirely by cash wedding gifts and airline miles. If you have a trip in mind, start planning for it now by researching travel deals and prices. Then start saving.

  1. Set a target date for the purchase of the trip and then calculate how many months away it is.
  2. Determine the cost of the trip. Allow at least 20% overage for cost increases and the fluctuating dollar.
  3. Divide the cost by the number of months. That’s how much you need to squirrel away in order to pay cash for the trip.

Note: you should actually charge the reservations, tickets, and other costs to a credit card in order to receive purchase protection and get a better currency conversion rate, but pay off the credit card in full from your savings.

Create a Vacation Savings Account
This is not your emergency fund, although it could be the same account if you’re very good at keeping the amounts separate in your accounting. If you don’t trust yourself, just open another online savings account and set up a direct monthly transfer.

Avoid Buying Tchotchkes
We all enjoy souvenirs, but the things you buy on vacation should have meaning. If you have a keychain collection that you display, then those are great souvenirs. If you have a bunch of keychains stuffed in a drawer, then they’re a waste of money. I like to buy small pieces of art when I travel. They’re displayed in my apartment.

You should plan to buy something that the region is known for. For example, if you’re visiting Venice, consider buying something made from Murano glass that you will actually use. On the other hand, don’t go to Ireland and buy an Irish wool sweater if you hate wearing wool

Set a Souvenir Budget
Before you go, set a budget for your souvenirs. For big-ticket items, research the cost of buying the imported item locally. Then look for a cheaper price (converted into their currency) over there. Avoid going over the budget unless it’s really, really worth it and you’re willing to cover the cost by economizing on another aspect of the trip (like a meal).

If you can, think about it for a couple of days before you buy it. Try to buy your souvenirs near the end of the trip (or the end of the day if you won’t be returning to that attraction again) so you’ve had time to review your options.

Don’t Be Stingy
Of course, don’t be so budget-minded that you refuse yourself any treats or souvenirs. Be sure to have at least one great meal and stay in a decent place. Making yourself miserable with uber-cheap lodgings or refusing to eat out will only prompt you to make up for it by spending more money on other things, or leave you with bitter feelings about the place.

When planning my honeymoon, I opted to save $20 on a room for one night. We regret that decision to this day – we wound up on a lumpy, rough mattress above the smoking patio of a bar where the patrons sang Billy Joel off-key for half an hour. We vowed never to return to that town again.

Yes, you do deserve a vacation, but you shouldn’t have to overspend to enjoy it. By planning ahead and sticking to my few simple tips, you’ll not only avoid debt, you’ll also enjoy your trip and your memories that much more.

First the bad news: if you’re just starting to plan your summer vacation, distant locales may be out of the question, but you can still find some good deals if you start now. Here are my summer vacation ideas that are both affordable and fun.

This summer, many people are discovering camping is one of the more affordable summer vacation ideas. If you want to camp, book your campsite now! Start by going to ReserveAmerica to find state parks. If your state doesn’t participate in their program, visit your state website to find out how to reserve a campsite. Some national parks may be available through the site, but you can also check the National Park reservation site. If you were hoping for any of the holiday weekends, you’re probably already out of luck, so keep some flexibility in your dates. The most popular parks like Yosemite, Grand Canyon, and Yellowstone may already be booked.

If you don’t have camping gear, see if any of your friends have some you could borrow. If you plan to make camping an annual event, now is great time to check sporting good stores, Target, Wal-Mart, and Costco for camping gear. Although it won’t be on supersale until later in the summer, they may have weekly specials on some items.

City Vacations
If you live within a couple of hours of a big city, this summer is a great time to visit. Because of the slowing economy, many cities are expecting lower tourism than usual – which means more opportunities for you. Use Bidding for Travel for help booking a hotel through Priceline. Before booking your trip, check the city’s convention and visitor’s bureau website to make sure there aren’t any big conferences or events that week. If those events are in town, your rates will be higher. Refer to my articles on travel deals and using travel deal websites for more help finding good rates, especially if you can stretch your summer vacation into the off-season or shoulder-season.

Before you leave for the city, plan a loose itinerary. List all of the sights you want to see, and then visit their websites to see if they have any free admission days. You should also check to see if you need tickets or reservations for the most popular exhibits. During the summer, museums often have free or low-cost evening events that are fun for the whole family.

To save money on eating out, plan for picnic lunches and bring portable breakfast foods with you.

Local Vacations
Sometimes it seems like going on vacation requires another vacation to recover from it. Skip the hassle by vacationing at home and visiting local attractions. Don’t tell your boss, relatives, or co-workers that you’re staying home, because they’ll feel like they can call you. If you want to pretend you’re away from home, camp in the backyard. Visit your city’s website to find local attractions. If you’re a member of AAA, visit a local office to request a guidebook for your state. It offers a wealth of local sights, complete with pricing and hours.

The best part of vacationing at home is the cheap food and lodging. To make it feel like a vacation, plan at least one nice dinner out or one night roasting marshmallows on the barbecue. You should also eat all the food you normally reserve for travel. With the money you’re saving, you can afford it.

Visit Family
I know many people don’t consider family visits to be vacations, but it can work if you make it clear that you don’t expect them to entertain you the whole time. Plan your own outings, and invite them along. You should also plan to cook for them or take them out to dinner at least one night and offer to help pay for groceries, change your sheets, etc. Of course, avoid visiting family members who make you tense!

Split the Cost with Friends
If you want to rent a summer house for a week, try to find one that is slightly larger and then split the cost with another family. That way your kids will have friends to play with, and so will the parents. Only couples and adults need bedrooms. The kids should be fine crashing in the living room. Check Craigslists’s vacation rental listings for possible nearby destinations.

Stretch Out Work Conferences
If one of you has to attend a work conference this summer, build the trip around it. Usually, the company will cover the plane ticket no matter when you fly out or back as long as it doesn’t cost them more money. Simply go a few days early or stay a few days later to save the cost of one plane ticket. You’ll probably want to change hotels – conference hotels can be pricey – but you can usually find one nearby that offers good deals for families.

Believe it or not, you can vacation affordably, if you plan early. It’s already April, so you’ve got no time to lose. Start planning now!

If you have affordable summer vacation ideas, please share them in the comments.

In the next in my series of ponderings about what constitutes frugality, I tackle pets. Many people would argue that pet ownership isn’t frugal because it’s a 100% optional expense. Pets are more than a mouth to feed, though; they also provide numerous benefits to their owners. Although it depends on the type of pet you choose, pet costs also aren’t as high as you might think.

Cat Care Costs
Cats are much cheaper than dogs. You can often get a cat for free from friends and neighbors, or you can adopt one for the cost of the shots and spaying or neutering from a shelter, pound, or pet rescue organization.

The initial costs can be high – for example an indoor cat will need three rounds of shots, plus the costs to have them fixed. You’ll also need to buy a litter box, litter, toys, food dishes, and scratch pads or a scratching post. Aside from the vet costs, start-up costs are around $200, but it can vary. You can buy a good scratch pad for $7 or splurge on a luxury cat tree with sisal posts for $500. We have a sturdy sisal post that cost around $50, but our cats prefer the $7 corrugated cardboard pads.

The costs also depend on whether you have an indoor cat or an outdoor cat. Outdoor cats require annual vet visits and more shots. Indoor cats rarely need to visit the vet until they reach their senior years. Vet costs vary by region, but ours are around $45 a visit, plus the cost of immunizations and lab tests. Getting them fixed was around $100 each. We have a very good vet, but you can also find low-cost clinics that provide excellent care. Our total year one cost for vet visits, neutering, and shots was around $300.

Food costs are fairly low – around $15 a month for high-quality wet and dry food.

Litter can also run about $10 a month if you buy good litter (which I recommend.)

If you travel, your cat can usually last a couple days without you, but after that you’ll need to hire a sitter to drop by to clean the litter box and replenish food, or ask a friend to do it. Sitter costs vary by region, but assume about $25 a visit. Friends are free, but you should at least take them to lunch or make them dinner as a thank you. You can also pay the neighbor kid about $20 for a week.

For longer trips, you may need to look into a kennel, which can run $30 or more per day.

The Los Angeles Times estimates that the average family spends $244 a year on their cat. We spend more than that, but we buy them very high quality food. The total is around $600 a year for our two cats.

Dog Care Costs
Overall, dogs cost more than cats. Most dogs are not indoor-only, which means they require more vet visits and shots. The Los Angeles Times says the mean cost to own a dog is $395 a year.

Dogs are rarely available for free. They’re usually purchased from breeders, where prices vary widely depending on the breed. However, you can adopt a stray mutt from the pound for around $50.

Initial start-up costs include shots, pest removal, spaying or neutering, dog bed, food bowls, collars, and leashes. The total cost can be around $350, depending on local vet costs and the accessories you choose to buy.

If you travel, you’ll either need to hire a sitter or ask a friend or neighbor to walk your dog at least once a day and freshen the food. Sitter costs can be around $25-30 a day for drop-in visits. A kennel can be as high as $55 a day. Check with a local humane society to see if they offer lower fees.

Food averages about $20 a month, but largely depends on the kind of food you choose.

Unlike indoor cats, dogs also need yearly vet visits and shots, which can add another $2-300 to your annual vet bill.

However, the costs of owning a dog are outweighed by the health benefits. Because you have to walk your dog, you’re guaranteed daily exercise that will help keep you fit. Dog ownership has also been shown to reduce stress and improve blood pressure.

Reducing Pet Costs
There are a few ways to reduce your pet expenses:

Get a mutt. Mixed breed animals are cheaper to buy, and usually have lower healthcare costs. Purebreds may have genetic weaknesses that make them more prone to illness.

Use a low-cost clinic. Pet stores often offer low-cost weekend clinics for basic immunizations and check-ups.

Buy insurance. Most owners don’t have insurance because of the high deductibles and premiums, but you should consider if you have an expensive breed prone to illness. You could also opt to put the premium in a savings account where it will earn interest until you need it.

Don’t panic. Cats and dogs sometimes exhibit strange behavior. Unless it involves bleeding from strange places or an obvious infection, wait a few days to see if it clears up before you visit the vet only to be told, “Yeah, cats do that sometimes.”

Double-check pet deposits. If you live in an apartment, your landlord may ask for a pet deposit. Before you pay up, make sure that they’re allowed by state law. In California, they must be refundable. The pet deposit plus the security deposit can’t be more than two times the monthly rent.

I firmly believe that pet costs are worth it. Although it’s not a frugal choice, it’s also not a huge expense that doesn’t provide a benefit. We wouldn’t give up our cats unless we had a dire situation. Do you think pets are worthwhile expense? Tell me in the comments.

Budget BustersMrs. Micah sent out a general tag for the top 5 budget busters meme and I’m taking up the challenge. I can actually boil them down to two things: food and my husband. Sometimes the two are combined. We don’t have a formal budget, but we have an idea of what we should be spending. Unfortunately, we often exceed that in specific areas.

Food Budget Busters
Food, specifically groceries, are probably our biggest budget buster. Our food costs are around $500 a month, which is high for a family of two, but there are three reasons for this:

We eat well. A typical dinner is chicken marsala with roasted red potatoes and a walnut gorgonzola salad. Although I shop wisely, buying good, fresh ingredients does cost more than a coupon-bought TV dinner.

Food costs are going up. The price of eggs has gone up 50 cents a dozen this year. Corn tortillas are up 60 cents. That’s a pretty substantial increase when you add it up over a year.

Food intolerances. Thanks to my food intolerances, our food costs are at least 30% higher, probably closer to 50%. My flour blend alone costs 5 times more than white flour (and therefore used sparingly.) A pound of pasta costs 3 times more (and is also used sparingly). They also make it difficult to change our diet to cheaper foods. Eating meatless meals won’t really save us any money. Even if we wanted to buy all our food with coupons, I can’t eat most packaged food.

Spousal Budget Busters
My other budget busters are, collectively, my husband. He feels that because we make a certain amount of money and have certain jobs we should be able to live a certain way. He’s also not quite as panicked by our debt. Since we see these two things so differently, we go over budget in the following areas:

Work Lunch: He eats out with co-workers a couple of times a week. They nearly always split the check, which means he nearly always overpays. Then there are the times when they change plans on the way to the restaurant and he finds himself in a steak house paying $40 for lunch, and then hitting happy hour later for another $20. That’s 2/3s of my grocery budget for the week!

Weekend Lunch: He still likes to eat junk food. Recently he’s gotten into the habit of either going out to run errands on Saturday and then stopping at McDonald’s, or waiting too long to eat and then running out to get a whole pizza. I buy him food he likes, but he wants to “treat” himself or doesn’t feel like waiting. The upshot is that he spends another $5-10 for weekend lunch.

Work Clothes: My husband is in one of the traditional professions, which means he wears suits five days a week. Cheap suits wear out, good suits are expensive. Both require regular dry cleaning. All those costs add up and there’s simply no avoiding them.

Charity Obligations: In addition, my husband has to attend various charity events for work. He nearly always gets suckered into making a donation. While I don’t begrudge him helping a good cause, it can still be a budget buster, especially since we don’t itemize and therefore can’t write off those donations. He also volunteers with some organizations that frequently run short on cash, and we often pony up the dough until they can pay us back.

I’m trying to find ways to cut the grocery budget, but the other budget busters are out of my control. Short of being a nag, it’s going to take a long time to correct my spousal budget busters.

What are your budget busters? Tell me in the comments. If you blog, continue the meme there! Like Mrs. Micah, I won’t tag anyone because I don’t know who enjoys doing these.

Prescription drug costs just keep going up. Rampant TV advertising to consumers and marketing to doctors isn’t helping any. Fortunately, you can find ways to reduce those costs. Use these tips to save money on your prescription medicines.

Use a Mail-Order Pharmacy
Most health insurance plans with prescription coverage offer a mail-order pharmacy. You can find out if yours does by calling them or logging into your health insurance plan online. With my plan, the mail-order pharmacy gives you three months for the covered price of two, even generics. They also include free shipping. To take advantage of it, you have to print out the form, get a prescription written for three-month refills from your doctor, and then mail or fax both to the pharmacy. You’ll get your first order a couple weeks later. Later refills can be requested by mail or online and take less time to process.

Use the Target or Wal-Mart Pharmacy
Both Target and Wal-Mart offer $4 generic prescriptions in most states. See if your state and prescription is on Target’s $4 generic drug list. You can also review Wal-Mart’s $4 generic drug list. The restricted states are the same. You should also note that Wal-Mart only offers that price on the “most commonly prescribed dosage.”

Ask the Doctor about Generics
New drugs are heavily marketed to doctors, and many of them prescribe those drugs as a result. Ask the doctor if an older generic is available and would be equally or more effective. For example, a new schizophrenia drug was found to be less effective than one that has been around since the 1950s, and had increased risk of serious side effects. Similar results have been shown with more common drugs for heart disease and cholesterol.

In some cases, you may have to stick with the name-brand. Even though the active ingredients are identical, the fillers are not and you could react poorly to the fillers. Many women have had problems with generic birth control pills causing more side effects than the name-brand versions.

Buy Over-the-Counter Alternatives
Several allergy drugs went over the counter at the same time as the generic was released to avoid losing money when patients were forced to switch to the generic by their insurance companies. The good news is that the generics are available over-the-counter, too, and are usually right next to the original on the shelf!

Be careful when opting for herbal supplements instead of prescriptions. Some herbs can negatively react with other prescription drugs. In some cases, they only make the prescription ineffective; in others they can actually be harmful to your health.

Consider a Canadian Pharmacy
I haven’t investigated Canadian pharmacies, but they’ve been helping seniors in the border states for years. Usually you fax your prescription to the pharmacy, which has it rewritten by a Canadian doctor. Recently, drug companies have been tightening supplies to Canadian pharmacies with online ordering and international shipping, so you might find that you can’t get some of the drugs you need.

Don’t even think about using a Mexican pharmacy. Unlike Canadian pharmacies, they don’t have the same quality standards as we do. They’re also known for selling counterfeits.

Get a Drugstore Prescription Discount Card
Although you won’t get the same low pricing as you’d get from full prescription coverage through your health insurance, you could try a prescription discount card. Mrs. Micah discussed her experience with using a free discount card from at CVS. I Googled “discount prescription card” and found ten more sites offering them. Check their drug lists to find the cards that cover your prescriptions.

Of course, the best way to save on prescriptions is to not need them in the first place. In addition to the above suggestions, ask your doctor if lifestyle and dietary changes might work just as well. Being healthy not only reduces your prescription and healthcare costs, it makes life more enjoyable.

Another week, another set of carnivals. Once again, we have three. That seems to be my magic number.

We’ll kick off with the Money Hackers Carnival #7 at Mommy Gets Paid. In addition to my post on the foreign transaction fee settlement, you should also read Generation X Finance’s Signs You May Be a Victim of Tax Fraud.

The next carnival was the Festival of Frugality #120 at A Penny Saved. In addition to my post about clearing clutter to free your money, you might also enjoy Save and Conquer’s advice for avoiding impulse buys. My take: impulse buys become clutter!

The final carnival was the Carnival of Personal Finance #147 at MoneyNing. If you liked my post about the new gas mileage ratings, you’ll really enjoy reading about Lazy Man and Money’s dream car: the tank. Talk about bad gas mileage!

wedding giftsThese days, weddings happen year round, but spring through early fall are peak wedding season. If you’ve got invitations and save-the-dates stacking up on your fridge, you’re probably already wondering how you’re going to afford it all. Use these ten tips to survive wedding season without going into debt or using up all your spare cash.

Set a Wedding Budget
Budgets aren’t just for brides. You probably already know how many weddings you’ll be invited to. Look at your budget and then set a limit for gifts and related travel. Once you’ve set your budget, prioritize it amongst all the invitations. You may find that you can only attend one out-town-wedding and four in-town weddings, and will only send small gifts to the rest.

Don’t Feel Obligated to Attend
Don’t fall into the “they came to ours” trap. Your situation is not their situation. Unless it’s your sister, brother, parent, child, or best friend, you don’t have to go. If it’s your third cousin three states away that you met once, you really don’t have to go. She probably doesn’t even want you to come and only sent an invitation because her mother told her to.

Don’t Feel Obligated to Spend as Much as They Did
Once again, it doesn’t matter what they spent on your wedding gift. Your situations are different. If all you can afford is a card and a promise to make them dinner (and admire the pictures) after they honeymoon, they’ll appreciate it. Or give them a service – maybe you’re good at painting and they just bought a house. Give them a weekend of painting help. The key is not to skip the gift entirely. A simple card says you at least gave the couple some thought before you ate the free dinner and drank the free booze.

Shop Early to Save on Gifts
Check the registry as soon as you receive the save the date. Plan to buy your gift four or five months in advance to ensure that the gifts in your price range are still available. Lower-priced gifts are often snatched up for bridal showers.

Buy Several Gifts at Once
If you’re attending mostly local weddings, make one trip to buy all the gifts. That way you can be sure you don’t go over budget. It also saves gas and time.

Don’t Veer from the Registry to Save Money
Rather than buy something mid-priced that’s not on the list but looks really nice, buy a selection of cheap things and combine them into one gift. Trust me, if they didn’t register for the $50 10-glass set, they don’t want it. If you do veer off-list, include the receipt. Don’t make the couple figure out where you bought it so they can return it.

Gift Cards and Cash Are Golden
If you can’t find a gift in your price range, give cash or a gift card from a store where they’re registered. Don’t get creative with the gift cards, though. If you live in another state, they may not be able to use a gift card from your local store. If you don’t live near a store where they’re registered, either give cash or order a gift card online.

Re-Gift Wisely (No One Wants Your Old Junk)
Many people re-gift wedding gifts. You can pull off a nice crystal vase or a silver frame, but no one wants the ugly plastic pitcher you used once or the cheap doll you picked up on your last vacation and now don’t have a place for.

Turn an Out-of-Town Wedding into Your Vacation
If you’re invited to an out-of-town wedding in a location you’ve always wanted to visit, stretch the trip out on either side and turn it into your affordable vacation for the year.

Wear the Same Suit or Dress to All of Them
You don’t have to buy a different outfit and shoes for each wedding. No one will notice what you’re wearing – all eyes are on the bride. If it fits, looks good on you, and doesn’t compete with the bride or her bridesmaids, that’s all that matters.

I’m lucky – I only have two weddings to attend this year. We were invited to a third wedding, but attending would have cost $1500. Even though the bride attended ours, it’s just not in our budget. I did send a nice gift from her registry, which I bought when it was on sale! We’ll survive wedding season just fine.

If you have other tips, share them in the comments! You might also find some of my Christmas shopping tips helpful. Many can also be applied to wedding gifts.

I loathe my kitchen. It was apparently designed by a bachelor who did not cook and it’s ridiculous. We have tons of storage everywhere in the apartment except the kitchen. Every day, I yell “I hate this kitchen” while making dinner. But not anymore! Now that we’ve completed our $14 kitchen makeover, I don’t love it, but I hate it a lot less.
cheap kitchen makeover

These are photos of my old kitchen and my new kitchen. See the difference? It’s subtle. It’s the wire cage shelving – we don’t need it in my new kitchen. No, we didn’t start buying less food. Instead, we installed this wondrous thing: the shelf. It’s a simple plywood shelf, but it’s made using our kitchen a lot easier.

new kitchen shelf

What We Did
It all started with the new microwave. Our old one was shooting sparks, so I asked the manager to replace it. Rather than installing the new microwave in the same place under the counter, they installed it over the stove. My mom suggested that we remove the old microwave and install a shelf in its place.

Removing the microwave was easy – it was only held in by four screws. My dad and my husband then went to Home Depot to have a piece of thick plywood cut down to size. We already had a drill, level, and lots and lots of screws. I’m one of those people who saves every unused screw from every kit, package, or piece of furniture I buy, and I have for years. They also bought a small strip of wood to support the shelf.

The total installation time took less than an hour. Now we can freely access all our cabinets (few though they are), and open the fridge all the way.

Additional Kitchen Makeover Ideas
If you have a tiny kitchen and a full remodel is out of the question (whether it’s due to lack of funds or lack of ownership), you do still have several makeover options:

Pot Rack: I considered hanging a pot rack when I first moved in, but the ceiling is a giant, fluorescent light fixture. Hanging one from the wall still would have limited our ability to access the freezer.

Magnetic knife rack: If you’re short on drawer space and don’t want a knife block (or are short on counter spice), bolt a magnetic knife rack to the wall.

Magnetic spice rack: You can also buy metal spice containers and attach them to a magnetic wall strip.

Removable shelf: the shelf on our counter was part of set of kitchen equipment. We set it on the counter to double our counter storage space.

Hanging baskets: My best friend hung wire baskets from the ceiling in her tiny New York City kitchen. Rather than use it for fruit, she used it for plastic spice bottles, garlic, and onions. These are also handy for holding bottles in the shower.

Cup hooks: Screw metal hooks under your cabinet and hang your mugs, spatulas, or other lightweight items from them.

Relocate your storage: If you can’t do any of the above, you could buy a cheap bureau with deep drawers or buy a stand-alone cabinet and hutch. Put them in the dining room or just outside the kitchen to add more storage space. Just make sure the drawers have sturdy bottoms if you plan to put dishes, pots, or pans in them.

For now, we’re happy with the dining room cabinet and our new kitchen shelf. I will probably be able to tolerate the kitchen a lot longer now.

If you’ve already commented to enter my TaxCut Online giveaway, you can also enter these contests as a back-up:

Last Minute TaxCut Giveaway at Mrs. Micah.

24-Hour TaxCut Giveaway at Money Saving Mom.

The Total Money MakeoverBoth Dave Ramsey’s book and workbook, The Total Money Makeover, detail his system for getting out of debt. When I saw that it’s published by Thomas Nelson, I was concerned it would be heavy on the scripture and light on the advice, but I was very pleasantly surprised. I’m ever the contrarian, though, so there were still some elements that turned me off.

The Total Money Makeover Workbook
First, let me get The Total Money Makeover Workbook out of the way quickly. It’s almost exactly the same as the book, but with some of the information delivered in quiz form. If you enjoy quizzes or are dealing with a spouse who’s still in denial about your debt, then the workbook may be right for you. Otherwise, I’d stick with the book.

The Good Parts of the Book
I really enjoyed Ramsey’s basic and pragmatic approach to getting out of debt. His Baby Steps chapters are heavy on practical advice and light on filler information. The Total Money Makeover features seven Baby Steps, although most of them are actually full-sized adult steps. The steps are:

  • Establish a $1,000 emergency fund
  • Work the Debt Snowball
  • Fill out the emergency fund
  • Maximize retirement investments
  • Save for college
  • Pay off the mortgage
  • Build wealth

Each of the steps is clearly explained and includes solid reasoning for each step. Even if you don’t agree, you’ll understand why he makes each recommendation. He also suggests modifications to help you get through the program, like only saving a $500 emergency fund if you have a low income and not including any debt that totals more than half your annual income in your initial debt snowball.

To quickly summarize the first three steps, he recommends establishing a $1,000 emergency fund before you start paying off debt. That way you don’t have to create new debt when an emergency arises. His debt snowball works from the smallest debt to the largest rather than highest interest rate to lowest. Like most other personal finance advisers, he says to pay the minimums on all debts except the first one, which you pay off as quickly as possibly. Then apply those larger payments, plus the minimum, to the second debt, and so on. After the debts are paid off (excluding very large debts and the mortgage), he says to fill out your emergency fund with 3-6 months worth of expenses.

I also appreciated his three very detailed budgeting worksheets, each designed to accommodate different types of income scenarios, including variable income from self-employment.

Negative Aspects
I found the first 90 pages of the book to be largely filler, mostly because I already know why payday loans, rent-to-own deals, and car leases are a bad idea. For people in serious debt from these loan products, then the first 90 pages may be necessary.

I was seriously turned off by his cutesy phrases, like “Social Insecurity” and “debt CONsolidation.” I felt I was being condescended to. I want a personal finance book that treats me like the adult I am.

I strongly disliked five aspects of The Total Money Makeover:

  • Suggestions to pay off the mortgage early
  • Warnings to never use credit cards
  • Generalizations about how the rich live
  • Claims about expected annual investment returns
  • Suggestions about expected annual withdrawals.

Pay Off the Mortgage Early
He encourages readers to pay cash for a house or accept a 15-year fixed-rate mortgage at most. That may be very doable for people with low-priced homes, but it’s unreasonable for first-time buyers in California. I also disagree that you should pay off a mortgage early. According to The Simple Dollar, Consumer Reports says it’s better to invest than to pay off your mortgage early because you can earn more through your investments.

Never Use Credit Cards
Ramsey is heavily influenced by his own past debt disasters, which I think skew his thinking on the mortgage issue. They also skew his thinking on credit cards. He argues that all credit cards are evil and that you should only use cash or a debit card. He says that banks can’t hold you liable for fraudulent purchases with your card. This is true – but that doesn’t mean the banks have to make it easy for you. I’ve heard several stories about banks either taking several weeks to replace the funds, or refunding the money promptly and then later deciding you did make the purchases and taking the money away. I don’t trust banks to get it right, so I’d rather use credit and pay it off every month. Credit cards are fine if you know how to control your spending and pay them off every month.

Generalizations about the Rich
He makes numerous general statements about how the rich live. He claims they don’t use credit cards and they don’t have mortgages. I know a few rich people and they do use credit cards – they just use them the way they were originally meant to be used rather than letting them collect interest. I also know some rich people with mortgages because they have such low interest rates or low mortgage balances. They believe that they can make more investing than they can paying off the mortgage early, especially if the bulk of the payment goes toward principal anyway.

Expected Annual Investment Returns
Ramsey also asserts numerous times in The Total Money Makeover that you can expect a 12% annual return on your investments (averaged over time.) As most investing books and magazines will tell you, that 12% is not guaranteed. Most recommend using the safer estimate of 8% for the total stock market. Ramsey suggests index funds, which have historically provided a 12% annual returns, but again, you have no guarantee of that. It’s better to be conservative and save more than to expect a higher return and find yourself without money when you’re 100.

Expected Annual Withdrawals
Finally, Ramsey advises readers to expect to withdraw 8% a year from their retirement and savings after they retire. Most financial experts recommend a maximum of 4% a year, no matter how much you’ve saved, because you don’t know for sure how long you will live and what medical expenses may arise. If your investments only end up earning 8% and you withdraw 8%, you’ll be in big trouble fairly quickly.

So-So Elements of The Total Money Makeover
While reading the numerous testimonials included in the book, I noticed that more than 50% of them are families with stay-at-home moms. He may not have intended that to be a message, but it was a subtle hint that women should aim to stay home to raise the children. There wasn’t a single stay-at-home dad. After a while, I stopped reading the testimonials because they also didn’t provide any real information.

My other issue involved an unfinished point. While discussing the Debt Snowball, Ramsey says he’ll explain later how to tackle large debts, but he never really comes back to that, unless you do it the same way you pay down the mortgage early, which he also doesn’t fully explain. I could probably figure it out, but I wanted to see his method.

Final Thoughts
If I were deep in debt and needed a good, simple plan for getting out of it, I would buy The Total Money Makeover. If I wanted something more in-depth or wanted a good solid plan for building future wealth, I’d read Your Money or Your Life. If I wanted a detailed discussion of wills, retirement investments, and real estate, as well as debt tools, I’d read The 9 Steps to Financial Freedom.

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