The Total Money Makeover: A Proven Plan for Financial Fitness

by Dave Ramsey

You need a credit card to rent a car, check into a hotel, or buy online.

A debit card will do all that.

The debit card has more risk than a credit card.

Nope.

Visa’s regulations require the card-issuing bank to afford the debit card the exact same protections in cases of theft or fraud. If you have any doubt, read the liability information on Visa’s own website. I contacted Visa directly and they sent this statement:

But remember, in order to get the full protection, be sure to run your card as a credit transaction—not using your PIN number. That’s what I do.

If you pay off your credit card every month, you get the free use of someone else’s money.

CardTrak says that 60 percent of people don’t pay off their credit cards every month.

The answer is that you lose and they win.

A study of credit card use at McDonald’s found that people spent 47 percent more when using credit instead of cash. It hurts when you spend cash; therefore you spend less.

MYTH: Make sure your teenager gets a credit card so he or she will learn to be responsible with money.

TRUTH: Getting a credit card for your teenager is an excellent way to teach him or her to be financially irresponsible.

That’s why teens are now the number one target of cred...

Two college students in Oklahoma gave up on their credit-card debt and committed suicide with the bills lying on the bed beside them.

Several thousand schools across America are using our high school curriculum called “Foundations in Personal Finance.” The results have been staggering. Teens latch on to The Total Money Makeover before they need one. A recent graduate of the program, fifteen-year-old Chelsea, said, “I think this class has totally changed my life. Whenever I see someone using a credit card, I think, Whoa! How could they do that to their life? I always thought you had to have credit-card payments, house payments, and car payments. Now I realize you don’t have to.” Very cool, Chelsea.

MYTH: Debt consolidation saves interest, and you have one smaller payment.

TRUTH: Debt consolidation is dangerous because you treat only the symptom.

Debt consolidation seems appealing because there is a lower interest rate on some of the debt and a lower payment. In almost every case we review, though, we find that the lower payment exists not because the rate is actually lower but because the term is extended. If you stay in debt longer, you get a lower payment.

MYTH: Borrowing more than my home’s value is wise because I’ll restructure my debt.

TRUTH: You are stuck in the house, which is really dumb.

My suggestion to Dan was that he call the second mortgage rip-off lender and get an acknowledgment of the truth, that there really isn’t any collateral for the loan. They wouldn’t foreclose in a hundred years, but they will sue him when the first mortgage company forecloses. So, after asking the second lender to release the lien for whatever proceeds above the first mortgage come from a sale, Dan will sign a note and make payments on the rest.

MYTH: If no one used debt, our economy would collapse.

TRUTH: Nope, it would prosper.

The occasional economics teacher feels the need to pose this ridiculous scenario.

Spending by debt-free people would support and prosper the economy. The economy would be much more stable without the tidal waves caused by “consumer confidence” or the lack thereof. (Consumer confidence is that thing economists use to measure how much you will overspend due to your being giddy about how great the economy is, never taking into consideration that you are going deeply into debt. If the consumer were out of debt and living within his means, the confidence he would have would be well-founded.) Saving and investing would cause wealth to be built at an unprecedented level, which would create more stability and spending.

Then taxes could come down, and we would have even more wealth. As that great philosopher Austin Powers said, “Capitalism, yeah, baby!” Ahhhh, capitalism is cool. Those who are worried about polarization, the widening gap between the haves and the have-nots, need not look to government to solve the problem; just call for a national Total Money Makeover.

Your largest wealth-building asset is your income. When you tie up your income, you lose. When you invest your income, you become wealthy and can do anything you want.

The Total Money Makeover mentality is to live like no one else so later we can live like no one else. A price has to be paid, and there are no shortcuts.

Other times risk denial is a kind of surrender in which we settle for a bad solution because we are so beat down or beat up that we wave the white flag and do something stupid.

This is the risk denial of someone who keeps a job he or she hates for fourteen years because the company is “secure,” only to find life turned upside down by a layoff when the “secure” company files for bankruptcy.

There is no magic key, and if you are looking for one, you’ve set yourself up for pain and the loss of money. One of my pastors says that living right is not complicated; it may be difficult, but it is not complicated.

MYTH: Everything will be fine when I retire. I know I’m not saving yet, but it will be okay.

TRUTH: The cavalry isn’t coming.

Your destiny and your dignity are up to you. You are in charge of your retirement. We’ll talk about how to take charge of it later in the book, but for now, you’d better be 100 percent convinced that this area deserves your full attention right now—not

MYTH: Gold is a good investment and will cover me if the economy collapses.

TRUTH: Gold has a poor track record and isn’t used when an economy collapses.

MYTH: I can get rich quickly and easily if I join these groups, buy this DVD set, and work three hours a week.

TRUTH: No one develops and makes a six-figure income on three hours a week.

MYTH: Cash Value life insurance, like Whole Life, will help me retire wealthy.

TRUTH: Cash Value life insurance is one of the worst financial products available.

MYTH: Playing the lottery and other forms of gambling will make you rich.

TRUTH: The lottery is a tax on the poor and on people who can’t do math.

Next time you do, look at the people in the line. Darryl and his other brother Darryl. These are not rich people, and these are not smart people.

Gambling represents false hope and denial. Energy, thrift, and diligence are how wealth is built, not dumb luck.

MYTH: Mobile homes, or trailers, will allow me to own something instead of renting, and that will help me become wealthy.

TRUTH: Trailers go down in value rapidly, making your chances for wealth building less than if you had rented.

MYTH: Prepaying my funeral or my kids’ college expenses is a good way to invest and protect myself against inflation.

TRUTH: Plans for prepaid funerals and college expenses give low rates of return and put money in the other guy’s pocket.

MYTH: I don’t have time to work on a budget, retirement plan, or estate plan.

TRUTH: You don’t have time not to.