The Total Money Makeover

TLDR; If you need motivation and how-tos on how to change your money habits you should read this book. But it’s more or less just a long form of the 7 baby steps

Dave Ramsey is a money guru in the U.S. and you can follow his show The Dave Ramsey Show on YouTube. His idea is based on 7 simple baby steps - I’ll go through my interpretation and try to translate them to people resident in Sweden (we pay a lot of taxes in this country).

Note that I don’t have any training, whatsoever, in giving financial advice.

Also note that I don’t believe that being wealthy equals being happy - but not having to worry about money is a good first step towards happiness.

Step 1 - Start an emergency fund

You should stop borrowing money. Now. So to avoid going into more debt you should do what you have to do to save up for a small emergency fund. Aim for $1 000 (we did 10 000 SEK). Never touch this money if it isn’t an emergency, like when your washing machine breaks down. Take-out is not an emergency.

Start by making a budget to find out what comes in and what goes out every month. Cut down on unnecessary expenses and put everything you can into a separate account, to start your emergency fund. This money is not for building wealth, so we do not care about any interest.

Step 2 - Pay off your debt

You want to start paying of your debt, because without debt it’s a lot easier building wealth. Gather your debts and order them from smallest to biggest, ignore your mortgage for now. Start by paying of the smallest one, go on with the next and so on. This is called the Debt Snowball.

The smartest move would probably be to sort them by interest rate and start paying off the highest. But we are not looking for being smart right now, we are looking for motivation and it’s easier to pay of a small debt. For every debt being payed off your motivation will increase.

Step 3 - Fully funded emergency fund

Now when you are “debt free” (congratulations!) you should start putting more money into your emergency fund so you make sure that you would never borrow money again. Aim for 3-6 months of expenses, depending on your situation - a house has more expensive emergencies than a rental apartment.

In Sweden we have a really good social safety net, that we pay for with very high taxes. If we get sick for a long time, or get fired, the system will take care of us in a reasonable way. And it’s not uncommon to have some sort of insurance from your employer that kicks is if you get sick. But I still think that a well funded emergency fund is a good idea, to prevent future debt. We are living in an apartment, that we own, and we have a daughter so we are aiming towards 50 000 SEK (around $5500 today). When we buy a house we will probably increase this to somewhere around 100k.

Step 4 - Start saving for retirement

It’s never to early to start think about your retirement. You should put 15 % of your gross salary towards retirement. The book talks about putting all into a 401(k) plan until you receive a full employer match, and then put the rest into Roth IRAs.

In Sweden, you employer has to put money into your general pension - but that won’t be a lot to live out of when you retire. Many employers also put money into an occupational pension, like a benefit. (If you want you can also save to your private pension, but the government screwed that up so now you will pay doubles taxes). If you have a good salary (more than 520k SEK per year), your employer will quite often offer you to switch some salary to pension and because pension is cheaper than salary for the employer (because of taxes) they will add some extra money to your pension.

We haven’t really decided on how much we will be putting into retirement yet but if you have the possibility I would recommend switching some salary to extra pension, because it’s free money. But we want to buy a house in a few years, so for now we will prioritize saving up for that.

Step 5 - Save for your children

You starting to get most things in place, so now it’s time to start saving for you children’s college fund. It may not be easy but it’s quite simple - you already have a deadline (you know when it’s time for your children to go to college) and you know how much you need to save (if you don’t, do your homework and get those numbers). Just make sure you save enough every month to get there.

If the total cost is too much, don’t let yourself down. Any money that you can set aside will help your children getting less into debt. And I don’t think there’s anything wrong with having a job while in school.

But, in Sweden college is free - we have already payed for it with even more taxes. And even though there is no such thing as a good debt the swedish student loans is probably one of the most affordable loans ever. But I still think, if you have the possibility, you should try to set some money aside to take care of things like a drivers license or to help buying their first home.

Step 6 - Pay off your mortgage

The last step towards a complete freedom from debt - pay of you mortgage. Any extra money you can put into your mortgage will save you a lot in interest. Ramsey suggests to consider refinancing to a 15-year (or less), fixed-rate mortgage.

I haven’t really decided what to do when we reach this step. I think the current adjustable-rate in Sweden is as low as 1.5 %. If we would refinance it to a 10-year fixed-rate mortgage we would double our interest or even more. But, a fixed-rate gives you some sort of security. I would probably prefer a fixed-rate and make sure to pay of the mortgage within that 10-year period.

But because we’re planning moving into a house in within 3-4 years we will probably keep the fixed-rate interest and split our money between paying of our current mortgage and saving for a new house. After that, we will probably aim to pay of the mortgage in 10 years, or less, with a fixed-rate interest.

Step 7 - Build wealth and start giving

If you have taken yourself all the way to step 7, congratulations! You know what people with no debt can do? Anything they want!

Keep building wealth, and retire earlier than you expected. But, continue sticking to your budget. And don’t be greedy - be generous and start giving, both within your family but also to others that need it the most.