Self-Development Book Club - Breaking Free From Broke

tracymartorana4
4 days ago
7 min read

The title of this blog is a little misleading because, while I will indeed discuss the book "Breaking Free From Broke" by George Kamel, I will also cover another great book!

You have probably heard of Dave Ramsey. He is a well-known personal finance guy who has written books, created courses, hosted radio shows, etc. Why am I talking about Dave Ramsey? He has created a personal finance empire that has helped millions of people get out of debt and build wealth. Many people work for him, including George Kamel, who wrote Breaking Free From Broke. I feel you can't talk about George without also talking about Dave.

I found George on YouTube, where he co-hosts a show with Dave Ramsey's daughter, Rachel. The show is called Smart Money Happy Hour, and it is very entertaining. George and Rachel crack me up and offer up great content.

You can also find George co-hosting with Dave on The Ramsey Show and hosting a series on his own YouTube channel called Millionaires in Cars Getting Coffee.

When I saw that George had also published a book, I had to pick it up.

Watch Me Talk About It

Breaking Free From Broke

I believe this book should be required reading for every high school student. Imagine starting your adult life with the knowledge that would keep you out of debt (or at least would help you make fewer bad money decisions). Not only is this book full of great information, but it's funny too. Who wouldn't enjoy a book about debt and finance that makes you chuckle at the absurdity of our situation?

I'm going to share with you just a few highlights.

Student loans are out of control. I know there has been a lot of political discussion about student loan forgiveness, and I'm not arguing for or against. However, it was incredibly eye-opening to learn that in the last several decades, the cost of a college degree has risen by about 1400%. Since the average salary has not increased by even a third of that, it makes you wonder how kids are supposed to pay for schooling. It seems to be expected that you need a degree to find a good job, and to do so, you have to take out student loans. Starting as an adult, already $40,000 in the hole in order to get an average-paying job is not a good thing. It makes me wonder why college has become so expensive.

Credit Cards not only cause you to pay more due to interest and late fees, but they also cause you to spend more money outright. You might think that if you use a credit card and pay it off every month (but do you actually do that?), it's no different than using a debit card. However, studies have shown that when the money comes directly out of your account now (vs using someone else's money and paying it back later), we spend less. Simply by switching from a credit card to a debit card, you will naturally spend less money.

Car loans are a crock. According to George (and the whole Ramsey franchise), car loans are never a good idea. The reason? Cars depreciate incredibly fast. The book gives a great example of this. Say you buy a $40,000 car. You take out a 72-month loan (because that's normal now). When you consider the interest you pay on the loan, you are actually spending close to $50,000 for the car. Not only are you agreeing to buy the car for $10,000 more than they were asking for it, but in 5 years, you will still be making a car payment of, say $600, on a car that has depreciated to be worth only about $16,000. Of course, these numbers are estimates; the loan rate and type of vehicle might change the numbers slightly, but the lesson is obvious. The best thing to do is to save up and buy the car you can afford with cash. And I must say, George does a great job disproving all the arguments against doing this.

Mortgages can be a tricky business. If you don't have money to cover a really good down payment, plus homeowners insurance, taxes, a reasonable amount of home repairs, utilities, and property maintenance (in addition to your other bills and necessities), you shouldn't even think about buying a house. But once you decide it's time to make that big purchase, ignore the 20 other mortgage options and go for a 15-year fixed-rate mortgage where the monthly payment is no more than 25% of your take-home pay. And then, pay it off as fast as you can. If you are tempted to go for a 30-year mortgage, remember you will pay double the amount of interest by the time you pay that off. Instead, maybe buy a smaller house, buy in a different neighborhood, or delay until you have a bigger down payment.

When you decide to invest, slow and steady wins the race. Avoid the trendy "investments" that aren't investments at all. Things like cryptocurrency, single stocks, and permanent life insurance, to name a few. Instead, prioritize consistent investments into a 401k or Roth IRA.

Open your eyes to the marketing that is happening all around you. From the personalized ads showing up in your social media feeds to product placements in the shows you watch, you are subtly and not-so-subtly being marketed to all the time. If you didn't know it existed, don't let a commercial convince you to buy it. If you didn't need it 10 minutes ago, you don't need it now. Did you know that 51% of people making over $100,000 live paycheck to paycheck? Why do you suppose that is?

You have to be the boss of your money. Budgeting is the key to understanding why you're broke and finding your way out. It takes a little work to find the data, but if you don't know where all of your money is going, you are unable to fix your problems.

Curb Your Consumerism. If you are currently broke, you need to take a break from miscellaneous and impulsive purchases. Be honest, you don't need the majority of the things you buy. Do a no-spend month (where you buy nothing but real necessities), buy cheaper groceries, stop eating out, cancel subscriptions, etc.

There is no such thing as Good Debt. Stop borrowing money, figure out what you owe, and pay off debt using the debt snowball. If you don't know what that means, stay tuned for a quick summary of Dave Ramsey's book below.

Let's Talk about Dave's Book - Baby Steps Millionaires

I'm going to keep this short and just share the Baby Steps. Pick up the book to learn more. And I HIGHLY recommend you do so.

The Baby Steps

#1 - Save a $1000 emergency fund. Do this as fast as you can so you have money to cover unexpected events like a car repair. If you have to sell some things or start a side hustle to get this money, do it.

#2 - Once you have the starter emergency fund, pay off all debt except a mortgage using the debt snowball. This means listing out all debts from the smallest balance to the largest. Pay just the minimum on all debt except the smallest. Get that paid off asap. Then take the money you were paying on the smallest and put it toward the second debt (along with the minimum you were already paying). Then, once that's paid off, put all that money toward the next debt and keep going until all debt is paid off. If you don't have too much debt, you might be able to do this in less than a year. If you have more debt, it will take longer. It is what it is. (if you want to argue that it makes more sense to focus on the higher interest debt, don't. Read the book to learn why.)

#3 - Save a fully funded emergency fund. This will be 3-6 months of your expenses. Look at your budget to figure out what 1 month of expenses typically are and multiply that by 3-6. Three months is fine if you are single with no kids. Go for six months if you are married with kids, your job is seasonal, or you are self-employed.

#4 - Invest 15% of your pre-tax income into a retirement investment such as a 401k or Roth IRA.

#5 - If you have kids, start a college fund such as a 529 savings plan or an ESA Education Savings Account.

#6 - Pay off your house early.

#7 - Continue to build wealth and give to the charities you wish to support.

If you don't have kids and/or don't have a mortgage, it's your lucky day. There are only 5 baby steps for you!