Return to Book List

The Total Money Makeover -- A Proven Plan for Financial Fitness
by Dave Ramsey © 2007 (Thomas Nelson: Nashville, TN) [223 pages]
[Answer 18 of 25 questions correctly to receive 12 hours of Continuing Education credit.]

 

Introduction -- What This Book is NOT (xiii-xviii)
1. The author says that this book
a. is a detailed guide to investing.
b. offers new financial principles not taught by others.
c. shows how unrealistic it is to earn a 12 percent rate of return on your money in a long-term investment.
d. teaches that personal finance is 80 percent behavior, meaning that no financial information, however accurate, is helpful until you act upon it.

Chapter 1: The Total Money Makeover Challenge (p. 1-8)
2. All of the following statements are made in this chapter, but only one is the motto of this book. Which one is it?
a. You are the problem with your money.
b. Some of you are so immature that you are unwilling to delay pleasure for a greater result.
c. If you will live like no one else, later you can live like no one else.
d. Wealth building isn’t rocket science.

Chapter 2: Denial -- I’m Not That Out of Shape (p. 9-18)
3. What helped Mark and Kelly to turn their financial situation around for the better?
a. when they consolidated all their debts.
b. when they stopped living beyond their means.
c. when they changed jobs.
d. when they moved into a smaller home.

Chapter 3: Debt Myths -- Debt is (Not) a Tool (p. 17-51)

4. 75 percent of the Forbes 400 (richest people in America) said that the best way to build wealth is to
a. become and stay debt-free.
b. borrow money and invest it in real estate.
c. take out a home equity loan and put it into mutual funds.
d. put any debt into an investment whose rate of return is greater than the cost of the debt.

5. The author agrees with which of the following?
a. It is wise to loan money to a family member.
b. Cosigning a loan for someone is helpful.
c. Having a car payment is a reality we have to accept.
d. It is financially more responsible to buy a good used car that is 2 years
    old than it is to buy a new car.

PREDATORY LENDING SCHEMES WHICH PREY ON THE POOR

      Payday Loans -- You write a hot check for $225, dated one week from now (payday) and
      they give you $200 cash today. (This equates to an annual interest rate of 650%).

      Rent-to-own -- People rent items they can’t afford to buy because they only look at “how
      much per week” and think “I can afford this.” (average annual interest rate = 1,800%).

      Tote-the-note -- A dealer purchases a used car and sells it for a down payment equal to
      what he paid, so the payments at 18 to 38% interest paid weekly are all profit.

     “Ninety days same as cash” -- 88% of these contracts go beyond 90 days into debt
       where the interest rate is 24 to 38%, back-charged to the date of purchase.
 

 

      Beginning at the age of 25, if you invest a $464 monthly car payment in the average mutual
      fund earning a 12% annual return, by the age of 65 you will have $5,458,854.45. -- (p. 32)
 

6. Which is NOT true?
a. An automobile dealer makes more profit by leasing a new car rather than financing a new car or selling it for cash.
b. A new car loses 60% of its value in the first 4 years.
c. Consolidating all your debts into one smaller monthly payment helps you to change the bad habits of overspending and undersaving that got you into debt in the first place.
d. Instead of giving teenagers credit cards, parents should teach them to just say “No” to over-spending.

Chapter 4: Money Myths -- The (Non) Secrets of the Rich (p. 52-76)
7. The author advise everyone to
a. save for retirement now; don’t wait until later.
b. buy gold.
c. learn how to become wealthy quickly by buying real estate with no money down.
d. buy cash value life insurance.

      Gold has averaged a 4.4% annual rate of return for 50 years. The stock market has
      averaged a 12% annual return for 70 years. -- (p. 32)
 

8. The author also advises everyone to
a. buy a mobile home.
b. prepay their children’s college expenses.
c. develop a budget, retirement plan, and estate plan now.
d. enlist the help of a debt-management company or a credit-repair company.

9. It is wise to
a. leave all the debts in both your names when getting divorced.
b. file bankruptcy when your debts become overwhelming.
c. not carry cash.
d. have a legal will now in case you die.

INSURANCE YOUR SHOULD HAVE

      Auto and Homeowners Insurance -- with high deductibles.
      Term Life Insurance
      Long-Term Disability
-- equal to 10 times your income.
      Health Insurance
-- especially your Health Savings Account at your job.
      Long-Term Care Insurance
-- over 60, to cover in-home care or nursing home care.
 

Chapter 5: Two More Hurdles -- Ignorance and Keeping Up with Joneses (p. 77-92)
10. Dr. Tom Stanley, author of The Millionaire Next Door, discovered that the typical millionaire
a. plays the lottery.
b. lives in a midlife-class home and drives a 2-year-old or older paid-for-car.
c. looks rich.
d. lives in a mansion.

11. The author used to believe that ____ would earn him respect from others.
a. living in a larger home.
b. wearing expensive suits.
c. showing off a roll of cash.
d. driving a Jaguar.

Chapter 6: Save $1,000 Fast -- Walk Before You Run (p. 93-108)
12. A household budget should
a. be written.
b. be re-written every month.
c. show how every dollar will be spent.
d. all of the above.

Chapter 7: The Debt Snowball -- Lose Weight Fast, Really (p. 109-132)

13. Your most important wealth-building tool is
a. your income.
b. a home-equity loan.
c. an inheritance.
d. credit.

AN EXAMPLE OF WEALTH-BUILDING

      Annual Income = $40,000 (or monthly take-home pay of $2,850)
      Monthly payments:
           House =                 $850
           Two cars =     350 + 180
           Student Loan =         165
           Credit Card =           185
           Miscellaneous =        120
           Total Payments = $1,850
     
      If this family invested $1,850/month, they would have:
           1 million dollars after 15 years,
           2 million dollars after 20 years,
           3 million dollars after 23 years,
           4 million dollars after 25½ years.
 

THE DEBT SNOWBALL
      Pay off the smallest dept first, while making minimum payments on the other debts. Then, when that debt is paid, adding that monthly payment to pay off the next smallest debt, and so on.

14. Dave recommends paying off smaller debts first because
a. he wants you to establish a good credit rating right away.
b. the larger debts will always be with us.
c. behavior change is best achieved by making some progress right away.
d. this makes more money available for going out to restaurants.

15. If a “gazelle-intense” couple is having a difficult time finding money to pay off debt, what can they do?
a. Sell their car if it won’t be paid off in the next 18 to 20 months and completely pay for a used one with the proceeds.
b. Have a garage sale or sell items on the Internet.
c. Temporarily suspend their contributions to their retirement plan even if their company matches their contribution.
d. All of the above.

Chapter 8: Finish the Emergency Fund -- Kick Murphy Out (p. 133-150)
16. Which is TRUE about a fully-funded emergency fund?
a. It should cover 3 to 6 months of your family income.
b. It should cover 3 to 6 months of your expenses and be easy to get to with no penalties (like a Money Market account).
c. It should be put into a wealth-building investment.
d. Not everyone needs one.

17. A husband who truly understands the importance of “emotional security” to his wife will
a. invest in the stock market.
b. buy her expensive jewelry.
c. take her out to dinner often.
d. keep a fully funded emergency fund.

Chapter 9: Maximize Retirement Living -- Be Financially Healthy for Life (p. 151-167)
18. Dave recommends investing 15% of your before-tax annual gross income toward retirement.
What happens if you invest a lot more than 15%?
a. You will have an even greater retirement package with no debt.
b. You will end up keeping your home mortgage too long which reduces your wealth-building plan.
c. You will have less money now to save for college tuition.
d. both “b” and “c”.

19. Dave’s recommended retirement plan is to determine how much per month you should be saving at 12% in order to retire at age 65 years old with what you need (your “nest egg”). How do you determine the amount
of your nest egg?
a. It should be close to one million dollars.
b. It should be equal to the annual income you would like to retire on divided by 8%.
c. It should be big enough to afford a larger home.
d. It should be enough so you can live on 15% if it annually.

Chapter 10: College Funding -- Make Sure the Kids Are Fit Too (p. 168-182)
20. Dave believes that college is a luxury, not a necessity, because
a. a college degree does not guarantee a job or success: the person must supply attitude, perseverance, diligence, and vision.
b. student loans are an unnecessary burden; you can finish college with no debt by choosing the right school, living on campus, working, eating cafeteria food, and doing without.
c. the average college student graduates with $15,000 of debt, most of it used to live and eat off-campus, just to look good while getting the degree.
d. all of the above.

21. Which method of saving for college does Dave recommend?
a. baby life insurance.
b. savings bonds or a simple bank savings account.
c. a “life phase” 529 plan or a “fixed portfolio” 529 plan.
d. an ESA or a “flexible” 529 plan.

OTHER WAYS TO PAY FOR COLLEGE
Military service
The National Guard
A high-paying summer sale job
Government funding for working in a “underserved area”
Scholarships

Chapter 11: Pay Off the Home Mortgage -- Be Ultrafit (p. 183-202)
22. What happens if you hold onto your home mortgage in order to get the tax deduction?
a. You will lose money by paying out more money in mortgage interest each year than you save in a tax deduction.
b. You will save money because you are paying less taxes.

23. Families who follow Dave’s “Baby Steps” to get out of debt with gazelle intensity usually pay off their home mortgages in ___ years from the time they decide to have a Total Money Makeover.
a. 7
b. 10
c. 12
d. 15

Chapter 12: Build Wealth Like Crazy (p. 203-218)
24. You have reached the “Pinnacle Point” when you can live off ___ percent of your nest egg.
a. 5
b. 8
c. 12
d. 15

25. Of all the things you can do with money, ____ is the most mentally and spiritually healthy thing you can do with it.
a. having fun
b. giving
c. investing
d. paying off debt

BABY STEPS
      #1:   Save $1,000 fast as a starter emergency fund.
      #2:   Pay off all debts from the smallest to the greatest (the debt snowball).
      #3:   Finish funding your emergency fund until it covers 3 to 6 months of your expenses.
      #3b: Save for a home, either to buy fully with cash of the down payment on a fifteen-year, fixed-rate mortgage.
       #4:  Invest 15% of your income in retirement.
       #5:  Save for college using an Educational Savings Account or a 529 Plan.
       #6:  Pay off the home mortgage.
       #7:  Build wealth by investing in mutual funds.

HOW DAVE RAMSEY INVESTS HIS MONEY
25% of income invested in Growth & Income Funds (Large Cap or Blue Chip Funds)
25% of income invested in Growth Funds (Mid Cap or Equity Funds or S&P Index Fund)
25% of income invested in International Funds (Foreign or Overseas Funds)
25% of income invested in Aggressive Growth (Small Cap or Emerging Market Funds)