The Dave Ramsey Investing Philosophy
This calculator is inspired by the investment philosophy of Dave Ramsey, which emphasizes long-term, consistent investing to build wealth. The core principles include:
- Invest Early and Consistently: The most powerful force in investing is time. The sooner you start, the more time compound interest has to work its magic.
- Use Tax-Advantaged Retirement Accounts: Prioritize investing in accounts like a 401(k) and Roth IRA to maximize your growth by deferring or eliminating taxes.
- Invest in Good Growth Stock Mutual Funds: Ramsey advocates for investing in mutual funds with a long history of strong returns, suggesting a diversified portfolio across four types: Growth and Income, Growth, Aggressive Growth, and International.
Frequently Asked Questions (FAQ)
Is a 10-12% annual return realistic?
Dave Ramsey often uses a 12% average annual return for his examples, which is based on the long-term historical average of the S&P 500. While this is historically accurate, it's not a guarantee for the future. Many financial advisors prefer using a more conservative rate of 7-8% for planning. This calculator lets you adjust the rate to fit your own expectations.
What is the "future value" of an annuity formula?
This calculator uses standard financial formulas to work backward. It calculates the Present Value (PV) of your future goal and the present value of your future monthly contributions (an annuity). The difference between these two tells you how much you need as an initial lump sum. To calculate the required monthly payment, it uses the Future Value of an Annuity formula to solve for the payment amount.