Comparison of financial strategies: FIRE, 50/30/20, Bogleheads and Ramsey’s Baby Steps | Economy and budgeting

Comparison of financial strategies: FIRE, 50/30/20, Bogleheads and Ramsey’s Baby Steps |  Economy and budgeting

Financial movements such as FIRE, speed banking and strategies promoted by personal finance influencers such as Dave Ramsey and Suze Orman often play a major role in shaping families’ financial strategies. But this advice is a double-edged sword in the eyes of many professional financial planners.

These financial strategies can encourage individuals to approach their financial situation and educate themselves, but generalized advice can sometimes be more harmful than helpful when applied to an individual’s unique circumstances.

“They give advice to the masses, so you have to take them with a grain of salt,” says Christopher Swan, founder and chief financial planner at Swan Capital. “General advice helps people get started. I agree to stay with a client who is a fan of Dave Ramsey, because he did things to solve his debt and improve things. The downside is that those final rules are not always the best. “

The following popular personal finance strategies include nuggets of wisdom, as well as some disadvantages, according to experts. Keep reading to see what might work best for you.

Financial Independence Early Withdrawal (FIRE)

The FIRE movement throws the traditional budget out the window. Instead, supporters of the movement practice extreme savings and investments in order to retire much earlier than usual.

The idea for FIRE came from the 1992 book “Your Money or Your Life” by Vicki Robin and Joe Dominguez, but the movement has gained momentum in recent years thanks to bloggers such as Mr. Money Mustache, a site run by software engineer Peter Adeney. retired at 30 years old.

This strategy requires that individuals spend a small percentage of their income and be willing to invest much of the rest in a portfolio that will become their main source of retirement income.

This strategy is best for high-income people – usually six figures – who have the self-control and dedication to save up to 70% of their income. It is also best for FIRE practitioners to have a strong desire to retire early, whether they are motivated by an interest in a particular hobby or family time to support them through the savings process.

50/30/20 Rules

Rule 50/30/20 is a budgeting strategy that suggests allocating income after tax to three categories: 50% for needs, 30% for desires and 20% for saving or paying off debts.

This spending rule appeared in the senator’s 2005 book “All Your Worth: The Ultimate Lifetime Money Plan.” Elizabeth Warren and her daughter, Amelia Warren Tyagi. In order to comply with this rule, plan to count expenses such as rent, utilities, transportation, minimum loan payments, and food. Then keep track of all other expenses and aim to spend no more than 30% of your income after tax on needs. The rest can go to saving for retirement, college or other financial goals.

This strategy is best for people who need work space in their budgets and may have had trouble maintaining a budget in the past. However, it does not take into account a person’s age and approach to retirement, so this strategy may be best for those who are new to personal finance.

Dave Ramsey’s 7 Steps

Dave Ramsey is well known for his seven steps, a series of steps mentioned to help families build a solid financial base.

Ramsey’s steps are:

  1. Save $ 1,000 for your initial emergency fund.
  2. Pay off all debts (except the house) using the snowball debt strategy.
  3. Save three to six months of spending on a fully funded emergency fund.
  4. He invests 15% of his retirement income.
  5. Save for your children’s college fund
  6. Pay for your house early.
  7. Build wealth and give.

Ramsey is a supporter of the snowball of debt, a personal finance strategy for repaying debts in which individuals pay the lowest debt first, regardless of the interest rate. Others argue for a method of debt relief, in which individuals first pay the debt with the highest interest, regardless of the size of the principal.

The seven steps are best for people who have a lot of debt and are new to financial planning.

Bogleheads

Bogleheads, named after Vanguard Group founder John Bogle, supports an investment strategy that is based on low-cost and diversified investment tools.

Many of these investment principles are in line with what Andrew Dressel, a certified financial planner at Abundo Wealth, practices in working with clients, but a DIY investment strategy can go as far as it does for individuals.

“We believe in low-cost, well-diversified investments, which is the framework in which this movement is concerned. Our opinion is that it is great to have a low cost, but diversifying into a portfolio with two or three funds may not be enough. There are still large parts of the market left in this, “he says.

Bogleheads’ investment strategy may be right for you if you’re looking for a drama-free investment method – as long as you have the self-control to keep your investment strategy in the midst of market ups and downs.

Overall, Dressel says this and other similar financial moves can be great tools to get people involved and interested in managing their money wisely.

“Open up the conversation,” he says, “but it’s important for people to understand that these are not strict and fast rules – these are guidelines.”

Velocity Banking

Velocity banking is a money management strategy that has gained some attention in recent years. But it can be very risky, so be careful.

This strategy requires individuals to use a line of credit, usually a line of credit with equity, to pay for day-to-day expenses instead of a current account. The idea behind bank speed is that if you spread your money across various debt products, such as a HELOC, you will minimize interest payments and hopefully maximize your principal payments to pay off your mortgage faster.

This strategy is best for people who can spend less than they earn, have achieved career stability, and feel comfortable taking the necessary risks associated with banking speed.

All of these strategies can be powerful tools to arouse interest in personal finances, but people should also avoid online scams or simply develop unrealistic expectations.

“Finance is not learned much in schools. People understand it over time, ”says Bill Holliday, a certified financial planner at AIO Financial. “Listen to the success stories of Bitcoin millionaires and various headlines. People come with very different expectations and ideas, and all we can do is educate and guide. But some people don’t want that – they want to win the market or make a profit. All you can do is explain and describe the limitations. ”

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