Baby Step 7: Enjoy Your Money, You’ve Earned It

This article is an excerpt from the Shortform book guide to "The Total Money Makeover" by Dave Ramsey. Shortform has the world's best summaries and analyses of books you should be reading.

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What is baby step 7 of the Total Money Makeover program? What do you do after taking control of your money?

Baby step 7 lets you enjoy your money. After putting in the work, you can give, grow, and play.

Read more about baby step 7 of the Total Money Makeover program.

Baby Step 7: Enjoy Your Money

Completing six Total Money Makeover steps puts you in rare company—among the 2% of Americans who are debt-free. Welcome to baby step 7.

Because you’re debt-free, live on a budget, and have money for emergencies, you’re in control of your income and are building wealth. The only remaining question is what to do with your discretionary income now that you’re in baby step 7.

There are three purposes for money:

  • Having fun
  • Growing your nest egg
  • Giving

You should do all three of these things in baby step 7. Achieving financial fitness is like achieving physical fitness. You didn’t put in the work just to look good. Now you get to use your financial muscle.

Have Fun

If you want something and can afford it, by all means, indulge yourself—you’ve earned it. Up to this point in the Total Money Makeover, you’ve sacrificed by paying off debt and saving for the future—and like a kid who’s behaved so he can have ice cream later—you deserve the reward.

The problem is that most people buy things when they can’t afford them. Many callers to Ramsey’s radio talk show ask if they can afford to buy something major while doing a Total Money Makeover. He always says no, as he expected to do when a caller asked if he should buy a Harley. Ramsey was about to castigate the man, when the caller revealed that he made $550,000 a year and had investments worth $20 million. The man could afford it, so Ramsey encouraged him to buy and enjoy the motorcycle without guilt.

A key reason for a money makeover is to get your finances in order and build wealth so you can have fun later without guilt. If you’ve made it this far in your makeover, take your family on an expensive vacation or buy a new car with cash, because they’ll hardly make a dent in your finances.

Grow Your Nest Egg

At this step, you need to keep growing your wealth. While your nest egg may be substantial, if it’s under $10 million, continue to keep your investing simple.

Always manage your own money and stay on top of what it’s doing—but create a team of advisors to guide you when necessary. Look for teachers, not experts or people who try to take over your finances. You might include, for example, an estate planning attorney, a CPA, an insurance professional, a Realtor, and a financial planner. Also be aware of whether the advisor will profit from the advice she gives you.

You’ll reach a turning point, where your money is, in effect, working more than you are—that is, when you can live on your investment income. To determine whether you’re there, multiply your total investments by .08 and if you can live on that amount annually, don’t be afraid to start drawing on your nest egg at up to 8% a year. Enjoy the fruits of your labor!

Give Back in Baby Step 7

Giving may be the most rewarding thing you can do with money. You don’t have to be rich to help people, but you can often do more when you have money. The biblical story of the Good Samaritan is an example: When the wealthy Samaritan came upon a robbery victim lying along a road, he not only treated the man’s injuries, but he also took him to an inn and paid for a room, so he could rest until he recovered.

Wealth gives good intentions greater impact; it also gives you the opportunity to help on a large scale. For instance:

  • One man buys 75 kids’ bikes each year for an inner city agency serving poor families.
  • An anonymous donor gave a congregation $50,000, asking members to personally distribute it to people in need, one hundred-dollar bill at a time.
  • For years, a man dubbed the Secret Santa gave away $25,000 in hundred-dollar bills on the street each Christmas. After starting in Kansas City, he did the same thing in New York City after 9/11 and in Washington, D.C. after the sniper attacks in 2002. He ultimately gave away $1.3 million.

Some people don’t give because they want more for themselves. However—you can get trapped by greed and lose what you’re trying to hang onto. To demonstrate this, Ramsey refers to a method of capturing monkeys in the jungle. The monkeys were given long-necked bottles with nuts in them, and each stuck a hand in a bottle to grab the treat. But they couldn’t get their hands out as long as they held the nuts in a fist. The greedy monkeys refused to let go and were captured. To get the full benefit of your money, put it to all three uses—fun, wealth-building, and giving.

Baby Step 7: Enjoy Your Money, You’ve Earned It

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Rina Shah

An avid reader for as long as she can remember, Rina’s love for books began with The Boxcar Children. Her penchant for always having a book nearby has never faded, though her reading tastes have since evolved. Rina reads around 100 books every year, with a fairly even split between fiction and non-fiction. Her favorite genres are memoirs, public health, and locked room mysteries. As an attorney, Rina can’t help analyzing and deconstructing arguments in any book she reads.

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