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.

My post comparing being frugal with being environmentally friendly sparked some discussion about the difference between being frugal and being cheap. I recently read two books on just this topic: The Complete Tightwad Gazette and America’s Cheapest Family. In comparing the two books and the two concepts, I’m going to look at two areas I mentioned yesterday, that also consume a large portion of many budgets: food and clothing.

Cutting Grocery Costs: Frugal or Cheap?
To me, the Tightwad family is cheap, but the Cheap family is really just frugal. I define being cheap as going to great lengths to save money, even if it costs more in time and effort. Frugal means saving money without sacrificing quality of life. For example, the Tightwad family discussed one time they found off-brand sugared cereal at the ninety-nine cent store for thirteen cents a box, so they bought 50 boxes. I take issue with that for several reasons:

1. Despite the current gourmet 99-cent store press, some of the food in ninety-nine cent store is imported from countries with much lower food quality standards. At least in Los Angeles, a lot of it comes from Mexico. I don’t know that I can trust what’s in those boxes to be safe or healthy.

2. My family didn’t eat sugared cereal when I was a child because it’s not a healthy choice. I would rather spend more on quality cereal than save money by making unhealthy choices.

3. You have to have a lot of space to store that much cereal, which means your house is larger, which means the costs for heating and cooling said house are higher. Even if you store it in the garage, you’ve still got to have room in the garage for it.

4. You have to spend a lot of time driving around hunting for that sort of deal. Once the cost of gas is factored in, does it really save that much money? Isn’t my time worth more than that?

The Cheap family suggests ways to cut grocery costs without going to extremes, such as avoiding brand or store loyalty and stocking up (in smaller amounts) when something you like is on super-sale. Despite living in a huge city, I really only have a few grocery store options nearby and they don’t carry the same products. Comparison shopping between major grocery chains requires driving a couple of miles. In Los Angeles, that can be a substantial time investment. In my attempt to be more frugal, I buy a lot of my food from Trader Joe’s, where nearly everything is store-branded. Unlike either family, I do have to be brand loyal for some because of food intolerance issues. For example, I can only eat one brand of wild rice. Fortunately, that brand is around the same price as the major labels and comes in a smaller package. Unfortunately, it’s rarely on super-sale.

In my quest to be more frugal, I have adopted the Tightwad family’s suggestion to keep a price book. So far, I’ve discovered a few items where I’m spending more than I need to.

Cutting Clothing Costs: Frugal or Cheap?
Both families buy second-hand clothes, which is frugal, but I’m frugal in a different way. I buy 90% of my clothes from one chain store. The designs are classic yet fashionable, the styles fit me, the quality is excellent, and the prices are reasonable. They also regularly send me coupons by email. Rather than scour second-hand stores for my clothes, I can sit at my computer and order enough to use my 20% coupon and get free shipping. I return what I don’t like to the store I can walk to from my apartment. The clothes I keep usually last three to five years. So if I buy a dress for $50 and wear it 50 times, that’s $1 per wear. If I bought a $15 dress at a second-hand store, but only got 10 wearings out of it, that would cost $1.50 per wear, not to mention the amount of extra time it would take to find a dress I liked that fit me well.

I could definitely be more frugal, but I would never go as far as the Tightwad family. Yes, it’s nice to keep costs low, but I also value my time and my life too much to scour the area for thirteen-cent boxes of cereal. What is the line between frugal and cheap for you? Tell me in the comments.

For me, Suze Orman’s The 9 Steps to Financial Freedom: Practical and Spiritual Steps So You Can Stop Worrying was the book that really changed my life. I first saw her on Oprah and I believe I bought the book shortly after it was released. I still have it. Yes, it’s very basic, but that’s a good thing.

Here’s how this book helped me:

I understand how my attitudes toward money were formed.
Suze says that our attitudes toward spending are formed by the lessons we learn about money during our childhood. Not the financial lessons our parents intentionally teach us, but the lessons that they demonstrate. That rang really true for me. The summer when I was 15, my dad was laid off from his job and money was very tight. To this day, I live in fear of ever being in that situation and spending money can be painful for me when I feel our financial situation is threatened.

I got a health directive.
Around the time this book came out, my aunt died. As soon as I discovered that I could get a free fill-in-the-blanks Advanced Directive for Health without getting a will or hiring a lawyer, I filled one out. I wanted to make sure my parents had the power to make decisions if the need arose. This was before Terry Schaivo, and when that case arose I was very happy I had one already in place. You can get one for free from Compassion & Choices. If you have one, be sure to update it if your marital status or one of your designees dies or becomes unable to make decisions for you. I updated mine when I got married.

I understand the mechanics of money.
I received an inheritance from my aunt and Suze’s book taught me the basics about life insurance, retirement plans, wills, trusts, investing, and deciding to buy real estate. I’ve since learned much more, but this book provided the foundation for me to build on.

I continue to carry the lessons of this book with me, which is perhaps why Your Money or Your Life wasn’t a life changer for me. It had already been changed by The 9 Steps to Financial Freedom.

This isn’t to say the book is perfect. Certainly, she could delve deeper into each individual topic area, but if you don’t know the difference between a Roth IRA and a traditional IRA, or the difference between a 401K and other financial vehicles, then this is a good place to start. If you don’t think you need a will, this book will help you determine whether that’s true.

However, if you’ve already worked through the money lessons you learned as a child and already understand the basics of life insurance, wills, trusts, real estate, and investment options, then you don’t need this book. If you don’t believe that your childhood lessons affect your current financial attitudes, then this also isn’t the book for you.

If you want a basic book that provides an overview of several important personal finance topics and are interested in learning how you developed your financial attitudes, then I recommend this book.

Cathie Black is a powerful woman in the publishing industry. During her career, she has been in sales at Ms. Magazine when it first launched, the publisher of USA Today (also soon after its launch), and is now the president of Hearst Magazines. She has launched businesses, closed businesses, hired and fired, and commanded entire companies. She did all of this by starting at the very bottom. Her new book Basic Black: The Essential Guide for Getting Ahead at Work (and in Life) is part biography, part guide to both work and life. This is the book I wish I’d received as a college graduation gift, or maybe even for high school graduation. It’s also important for women to read because it includes advice men are socialized with, but women still aren’t usually taught.

Important Topics
Black weaves together important business and personal lessons while also incorporating case studies of businesses that thrived or failed. In addition, she lays down certain basic business rules everyone should know. The reason I think this book is better for women than men has little to do with her tone – she’s a powerhouse, no matter her gender – but because it’s important for women to see how other women can succeed and still balance their lives.

The book contains nine chapters:

  • Drive
  • Risk
  • People
  • Fear
  • Power
  • Passion
  • Attitude
  • Leadership
  • The Future Is Now

Her advice is drawn from her own experience, but she also recognizes that everyone has their own way of doing things, and their own way of responding. She explains how she learned to temper her own expectations and attitudes about how the workplace should be with the realities of other people. Doing so made her a better leader because she learned to speak to other people in their own language. At heart, the entire book is about becoming a good leader.

Balance
She discusses at length the idea that women no longer have to “have it all.” She stresses the importance of balancing life with work and of finding a workplace that accommodates the balance you require to thrive in both spheres. Her solution isn’t right for everyone, which she acknowledges, but everyone can find balance.

How to Get What You Want
The most important lesson from this book is her discussion of how to get what you want. This is valuable for both men and women, but it’s something more women need to learn to do because we’re not trained to do it. Her method doesn’t refer to raises, but to other situations, like avoiding interaction with a difficult co-worker, launching a new project, or requesting flex-time. Her suggestion is to create the solution before you ever present the problem to your boss. Be prepared to back up your argument with facts, and then ask the next steps before you leave the room.

Other Basic Business Advice
Several sections cover basic business advice we don’t learn in school anymore. She mentions things like taking the credit when it’s yours, which women often have a hard time doing. We always want to share it.

She also offers advice about:

  • Office parties
  • Presentations
  • Hiring
  • Firing
  • Making a good impression
  • Interviewing
  • Resumes
  • Being a team player
  • Being a boss
  • Overcoming fear

Basic Black is a good, basic business book packed with important lessons for any woman at any level, but that are especially important for women just entering the workforce.

It seems like every blogger I read loves Your Money or Your Life: Transforming Your Relationship with Money and Achieving Financial Independence, so I decided to find out what it’s really about. After all the hype, I expected to come away with a complete plan to makeover my entire life. Unfortunately, that wasn’t the case for me, but I think it could be excellent for people who need this book’s kind of help.

A Plan for People with Consumer Debt
I think it’s a very good plan, but it seems to work better for people with different goals than we have and less student loan debt. We can reduce our debt a certain amount, but until those loans are paid off, we can’t eliminate it. That means we can’t do much else with our lives or our money for the next several years. It’s also not worth it to pay off some of those loans. Mine are only at 3.85%, and we can make more than that in a savings account, definitely more than that investing!

Determining Your Total Earnings, Spending, and True Wage
I liked the idea of figuring out how much we made over the course of our lives until now. I found that I had more than I expected. They also suggested tracking spending closely, but we already do that. Just to give if a full test, I tracked my expenses for one month. The results weren’t all that surprising.

I very much liked the concept of calculating the value of your time and your true hourly wage to determine whether that wage is less than the value of your time. I found that my true wage exceeds the value of my time, which made me pretty happy. It also gave me something to consider if I’m offered other job opportunities – would the new wage be worth as much as it seems?

The Motivational Debt Chart
I also liked the idea of the debt chart. A visual representation of debt can be a great motivator for reducing it, but we’re already very motivated. Making more cuts isn’t going to be easy for us. We’ve made some reductions, but we’re very close to the basics at this point.
Aspects that Don’t Work for Me
Many of the other ideas they mention to reduce debt and increase life value simply don’t work when you live in an expensive city like Los Angeles. Moving closer to work is a great idea, but whose work are we going to move closer to?

We also don’t overspend the way many of the couples in the book did, so our money values aren’t that far out of whack. Our debt generally isn’t from trying to keep up with the Joneses, overshopping to console ourselves, or poor money management. Instead, it’s largely a result of our graduate degrees not yet recouping their investment, but they will in time. We both understand that we’re working to get more value out of the rest of our lives, but we also receive some value from our work. We chose to get our graduate degrees later in life (late twenties/early thirties) because they have personal value to us, but we knew at the time that it would mean taking on additional debt.

Final Thoughts
Overall, I think the book can be a life-changer for people who need motivation to change, need a better understanding of the true value of money, and have a financial history that lends itself to the program. We don’t and given where we live, our goals, and our chosen career paths (which do require us to remain in California in high-income/high-cost areas), I don’t see it working for us.

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