Welcome to the June edition of the AcceleratedFI roundup. Going forward I want to share a couple interesting pieces of content I find around the web. This might turn into a weekly feature depending on how many other things I’ve got going on but for now I’m just planning to share 3-4 articles each month. Enjoy!
One of my favorite quotes about Dave Ramsey is that he’s great for people who are terrible with money and terrible for people that are great with money. This article breaks down Ramsey’s philosophy pretty nicely.
Basically, the people who come to him are struggling with their money and are usually deep in dept (like 100k or more). So a lot of his financial advice is just 1 size fits all meant to appeal to the lowest common denominator in finances.
Another thing Michael Dinich points out in this article is how Ramsey has a tendency to talk down to people. On the one hand, you can’t really blame him. After decades of answering “Hey Dave, I’m 100k in debt and want to buy a new BMW. What should I do?”, you can see why he’d start to get a little jaded.
On the other hand, the beatdown approach just isn’t productive. Personal finance is a long haul journey and it’s important that people feel motivated and uplifted. This is a lifestyle change people will need to make and continue to live through for the next 50+ years. Positive reinforcement goes a lot farther than constantly beating people down for their mistakes.
This article takes a look at how big your portfolio would need to be to sustain a retirement budget of $94,000 per year. With the classic 4% rule, you’d be looking at about $2.4 million to retire.
This takes a more conservative look at things and analyzes a couple different asset allocations. Based on some pessimistic returns in the market and a 60/40 stock to bond split, you could make the argument that a 3% withdrawal rate would be more appropriate than 4%. With a 3% withdrawal rate you’d need $3 million to support $94k per year in income.
Almost everyone on the financial independence subreddit preaches the 4% rule but with the stock market, home prices, and consumer debt at all time highs right now, it feels like the 4% rule might be a little optimistic for the next 5-10 years. I wouldn’t be surprised if we saw a pretty big correction in the next decade which could quickly turn a 4% withdrawal rate today into a 6% or 7% withdrawal rate after the market chops off 1/3 of the value of your portfolio.
Paying off your mortgage is a huge milestone. For most Americans, their home makes up the largest percentage of their net worth. Having a paid off house also means it’s yours forever (except for those property taxes!).
Personally I’ve decided to stretch out my mortgage for 30 years and let inflation chip away at the value of that loan. I’ve been dumping all of my money into my 401k, Roth IRA and the affiliate websites I acquired. Once I get closer to retirement I’ll probably shift some of those dollars over towards paying off my mortgage more quickly. After all, once you have $1,000,000 saved for retirement, maxing out your 401(k) with $18k doesn’t make much of a dent since that’s the equivalent of a 1.8% return in the market. At the same time, that $18k would knock off almost 2 years of mortgage payments on my house.
A lot of people have a view of their mortgage as being fixed and locked in. If you sign up for a 30 year mortgage, that doesn’t mean you have to make 30 years of payments. You can choose to pay your mortgage off early but it might require some sacrifices.
There’s a lot of good advice in this article about areas you can look to cut back on to free up money, whether that’s towards paying off your mortgage or finding some extra money to invest in your retirement accounts. I don’t know if I could ever give up my smart phone but the rest of the ideas are totally do-able and realistic.
Hopefully you enjoyed these articles. I’d highly encourage you to check out these sites and take a look around. They have a lot of other great info on them and are in a similar vein to what I’m attempting to do here; spreading the word about FI and all the benefits.