The Total Money Makeover: A Proven Plan for Financial Fitness

Ramsey dedicates this and the next several chapters to identifying and eliminating the “major obstacles” that prevent most people from attaining financial success. The first of these is denial. Ramsey reports that “you can be financially mediocre […] and still be average. And […] being average, normal, and financially flabby is pretty much okay by most folks’ standards” (10). Denial is easy because when everyone is in denial, everything seems fine. Ramsey refers to the popular boiling frog metaphor: If the temperature of the water in the pot rises slowly, the frog doesn’t notice and won’t escape even when the water boils. Ramsey applies this metaphor in the story of a couple, Sara and John, who lived normally, accepted financial mediocrity and thought all was well—until Sara was laid off. They made changes because life “smack[ed] them so hard they got the denial knocked out of them” (13). He advises readers to “opt for the pain of change before the pain of not changing searches you out” (15), that is, to courageously face danger instead of denying it. He concludes by finishing Sara and John’s story—they made a strenuous effort and achieved financial peace though their family thought them weird, even fanatical.

In this chapter Ramsey strives to instill his own uncompromising aversion to debt. The tolerance of debt is the second obstacle to financial success, an obstacle supported by the desire for immediate gratification and by a multitude of myths that convince people that debt is inevitable, even good. Ramsey dedicates this chapter to demolishing these myths, thereby defending his unusual position on debt. He prefaces this undertaking with the assertion that these myths have become predominant through propaganda and mere repetition—everyone has bought into the idea of debt.

Ramsey admits that he once thought of debt as a useful financial tool. But then he experienced bankruptcy because of debt and realized that, as the Bible says in Proverbs 22:7, “the rich rules over the poor, and the borrower is slave to the lender” (22). Now he contends that the risks of debt always offset any purported benefits in the long run—therefore debt should be avoided. He mentions two arguments supporting his position. First, having met and interviewed thousands of millionaires as a financial counselor, he confidently reports that all of them abstained from debt: “They all lived on less than they made and spent only when they had cash. No payments” (23). Second, he points out that “three of the biggest lenders today were founded by people who hated debt” (23)—those lenders being Sears, J. C. Penney, and Ford Motor Company.

Including the myth that debt is a tool, Ramsey attacks 16 debt myths in this chapter. He contends that loaning money to friends and relatives only harms relationships—give instead! He asserts that cosigning loans for a friend or relative is unwise—“we end up paying them” (27). He argues that cash advance, pay day loans, rent-to-own, title pawning, and tote-the-note car lots are examples of predatory lending that take advantage of the poor rather than help them. He insists that “ninety days same as cash” deals are anything but what they claim to be. He denies that car payments are inevitable as death and taxes, explaining that the average millionaire drives reliable, used cars without payments and mentions that selling the fancy Jaguar was a necessary step in his own financial recovery. He adamantly affirms that leasing a vehicle is ridiculously expensive despite the tax benefits. He claims that buying a new car is never a good deal because it loses 60% of its value within four years. He shouts for all to hear that credit cards and credit scores are “dumb, dumb, dumb” (39)—instead of worrying about that, just quit borrowing money. He defends debit cards against the accusations that they cannot be used for certain purchases and are riskier than credit cards. He condemns credit cards on the grounds that most people don’t pay off their balance and spend more than they would with cash. He also cites a study by the American Bankruptcy Institute which revealed that 69% of those who filed for bankruptcy cited credit cards as the cause (42). He warns parents against helping their teenage children obtain credit cards to learn financial responsibility, pointing out that credit card companies target teenagers precisely because they don’t know how to spend wisely. He denies that mere debt consolidation is a solution for financial trouble because “the debt is still there, as are the habits that caused it” (48). He advises against borrowing more than the value of one’s home to “restructure” one’s debt. Finally, he asserts that a society without debt would prosper because “debt […] is a method to make banks wealthy, not you” (50). He points out that debt devours income, a person’s single greatest financial asset.

In this chapter Ramsey dispels additional money myths. These miscellaneous myths are characterized by either risk denial or the illusion of quick and easy wealth. Certain safety and minimum effort are desirable, but “when something sounds too good to be true, it is” (52).

Ramsey eliminates 16 myths in this chapter. He explodes the “golden years” myth of retirement: “This is the real world where sad old people eat Alpo!” (54). Not planning for retirement is risk denial. Ramsey argues that gold is not a great investment and certainly won’t carry people through economic collapse. He refutes the fantasy that some special secret or program can offer a quick path to wealth. He lambasts cash value life insurance, gambling and the lottery, and living in mobile homes or trailers. He advises against prepaying for funerals or the kids’ college expenses and insists that “everyone must budget, plan retirement, and do estate planning” (63). No excuses—make time for it. He dismisses debt-management companies as a solution for financial trouble because “turning all your problems over to someone else treats the symptom, not the problem” (64). He warns that offers to “repair” bad credit scores are usually scams and often illegal, that a divorce decree ordering a spouse to pay off a debt cannot be relied on—sell the thing rather than leave the debt in the air—that debt collectors are not friends, and that filing for bankruptcy is not an easy way out of financial trouble. He encourages buying things with cash, denying that carrying cash increases the risk of being robbed. Some forms of insurance are indeed necessary—auto and homeowner insurance, life insurance, disability insurance, health insurance, and long-term care insurance (for people over 60). Finally, he reminds readers that they will die whether they write a will or not—so they’d best write a will.

In this chapter Ramsey removes the two final obstacles to following his Total Money Makeover plan. The first of these is ignorance: “[N]o one is born with the knowledge of how to handle money” (78). Financial competence is a learned skill. Ignorance is not stupidity, and there is no shame in admitting to financial ignorance. After this, one is set to “go on a lifetime quest to learn more about money” (79). He warns that “what you don’t know about money will make you broke and keep you broke” (81).

The second obstacle is emotional: the need for approval, the desire to appear wealthy, and the tendency to conform. Ramsey explains that being wealthy is ultimately preferable to appearing wealthy. The expensive possessions might have to go, family and relatives may laugh or give strange looks, and feelings may be hurt: “[W]e like our nice houses and nice cars, and selling them would be painful […] we don’t want to admit to everyone we have impressed that we are fakes” (83). Radical change takes courage, Ramsey admits, but the reward—financial peace—is worth it. Everyone has a weak spot—everyone pours money into something to win admiration. Ramsey’s sore spot was a Jaguar that he was forced to sell only by the threat of repossession because the car had become his symbol of success, even his idol.

With these obstacles clear, one can now climb the mountain to financial success.