The Total Money Makeover: A Proven Plan for Financial Fitness

by Dave Ramsey

The dealer purchases these cars and sells them for a down payment equal to what he paid for the car, so the payments at 18 to 38 percent interest paid weekly are all gravy. Tow trucks all over town recognize these exact cars because the car being sold has been sold many times and repeatedly repo’ed by the dealer. Every time the dealer sells the car, his return on investment skyrockets.

The Federal Trade Commission continues to investigate this industry because the effective interest rates in rent-to-own transactions are over 1,800 percent on average. People rent items they can’t possibly afford to buy because they look only at “how much a week” and think, I can afford this.

When you think short term, you always set yourself up for being ripped off by a predatory lender. If the Red-Faced Kid (“I want it, and I want it now!”) rules your life, you will stay broke!

If you use Payday Loans, Tote-the-Note, and Rent-to-Own, please understand that you are being destroyed financially. These businesses feed on the working poor, and you must avoid them at all costs if you want to win with money.

The silly marketing that America falls for has resulted in this: we buy things we don’t need with money we don’t have in order to impress people we don’t like. “Ninety days same as cash” has exploded in furniture, electronics, and appliance sales.

Ninety days is NOT the same as cash for three basic reasons: One, if you will flash cash ($100 bills) in front of a manager who has a sales quota to meet, you will likely get a discount. If you can’t get a discount, go to the competitor and get one.

You do not get the discount when you sign up for the finance plan.

Two, most people don’t pay off the debt in th...

Please don’t tell me you are the one who is actually going to pay it off. A $1,000 stereo (don’t forget, you didn’t get a discount) will not make you rich in ninety days. But $1,000 left in a savings account at 3 percent annual interest will earn you $7.50 in ninety days. Wow, some financial genius you are!

Three, you are playing with snakes, and you will get bitten.

Marge called my radio show with this little story. She and her husband purchased a big-screen TV at a nationally known electronics store. This couple paid off the big screen slightly early to be sure they would not be tricked into the interest being back-charged. No such luck. They had declined the disability and life insurance (a charge of $174), but apparently the salesperson had fra...

No, Virginia, ninety days is NOT the same as cash.

MYTH: Car payments are a way of life; you’ll always have one. TRUTH: Staying away from car payments by driving reliable used cars is what the average millionaire does; that is how he or she became a millionaire.

Taking on a car payment is one of the dumbest things people do to destroy their chances of building wealth.

The car payment is most folks’ largest payment except for their home mortgage, so it steals more money from the income than virtually anything else.

The Federal Reserve notes that the average car payment is $495 ov...

As soon as a car is paid off, they get another payment because they “need” a new car. If you keep a $495 car payment throughout your life, which is “normal,” you miss the opportunity to save that money. If you invested $495 per month from age twenty-five to age sixty-five, a normal working lifetime, in the average mutual fund averaging 12 percent (the eighty-yea...

Some of you had your nose in the air as intellectual snobs when I illustrated how bad Rent-to-Own is because you would never enter such an establishment, an...

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Taking on car payments because everyone else does it does not make it smart.

Will your broke relatives and friends make fun of your junk car while you do this? Sure

Having been a millionaire and gone broke, I dug my way out by making a decision about looking good versus being good.

Looking good is when your broke friends are impressed by what you drive, and being good is having more money than they have.

Are you starting to realize that The Total Money Makeover is ...

You have to reach the point that what people think is not your primary motivator. Reaching...

Do you remember the circus game where you swing the large hammer over your head to hit the lever to send a weight up a pole to ring the bell? You reach the point that you want to ring the bell! Who cares if you are a ninety-eight-pound weakling with gawky form? The girls are still impressed when the bell is rung. When the go...

I drove the Bondo buggy for what felt like ten years during one three-month period. I had dropped from a Jaguar to a borrowed Bondo buggy! This was not fun, but I knew that if I would live like no one else, later I could live like no one else.

I believe, with everything within me, that we are winning because of the heart change that allowed us to drive old, beat-up cars in order to win.

If you insist on driving new cars with payments your whole life, you will literally blow a life’s fortune on them.

If you are willing to sacrifice for a while, you can have your life’s fortune and drive quality cars. I’d opt...

MYTH: Leasing a car is what sophisticated people do. You should lease things that go down in value and take the tax advantage. TRUTH: Consumer advocates, noted experts, and a good calculator will confirm that the car lease is the most expensive way to operate a vehicle.

Consumer Reports, Smart Money magazine, and my calculator tell me that leasing a car is the worst possible way to acquire a vehicle. In effect, you are renting to own.

Shouldn’t you lease or rent things that go down in value? Not necessarily, and the math doesn’t work on a car, for sure.

Follow me through this example: If you rent (lease) a car with a value of $22,000 for three years, and when you turn it in at the end of that three-year lease the car is worth $10,000, someone has to cover the $12,000 loss. You’re not stupid, so you know that General Motors, Ford, or any of the other auto giants aren’t going to put together a plan to lose money.

Your fleece/lease payment is designed to cover the loss in value ($12,000 spread over 36 months is equal to $333 per month), plus p...

You end up writing a large check just to walk away after renting your car.

The whole idea of the back-end penalties is twofold: to get you to fleece/lease another one so you can painlessly roll the gotchas into the new lease, and to make sure the car company makes money.

Smart Money magazine quotes the National Auto Dealers ...

Car fleecing is exploding because dealers know it is their largest profit center.

We live in a culture that quit asking, “How much?” and instead asks, “How much down, and how much a month?” If you look at only the monthly outlay, then you will always fleece, because it almost always costs less down and less a month, but in the long run, it is much more expensive.

Once again, the Red-Faced Kid bought something he couldn’t afford using an unwise method and then attempted to justify his stupidity. That redfaced stuff won...

Craig called my radio show to argue about leasing because his CPA said ...

He missed two important points.

First, 98 percent of fleecing is done on a new car, which rapidly loses value, not a wise business decision. Second, creating an unneeded business expense for the sake of a tax write-off is bad math.

tax write-offs,

MYTH: You can get a good deal on a new car at 0 percent interest. TRUTH: A new car loses 60 percent of its value in the first four years; that isn’t 0 percent.

No, you can’t afford a new car unless you are a millionaire and can, therefore, afford to lose thousands of dollars, all in the name of the neat new-car smell.

A good used car that is less than three years old is as reliable or more reliable than a new car.

A new $28,000 car will lose about $17,000 of value in the first f...

The average millionaire drives a two-year-old car with no payments. He or she simply bought it. The average millionaire is unwilling to take the loss that a new car dishes out; that is how they became millionaires.