For years Dave Ramsey and Suze Orman are household names in the world of personal financial advice. They have huge social media followings and have helped millions with their advice on how best to manage your personal finances.
You might be asking, “who is better”, or “what are the differences?”
The answer is that when it comes to Dave Ramsey, many follow his advice as they appreciate that you don’t need to be a financial expert to apply his advice to implementing it and reducing your personal debt.
Suze Orman has a different approach in that there is an increased emphasis on managing debt rather than getting rid of it completely, and her advice often deals more with the psychological obstacles to overcome when improving your personal finances.
Let’s take a deeper look at the advice on offer.
Before we get started we believe both provide excellent advice, readers should seek a second opinion before following any advice here for from Ramsey or Orman. In this article we will take a deep dive into the advice they both have to offer and find out which comes out on top for you.
Essential to Ramsey’s plan is staying debt free wherever possible. To ensure this he advises that you should save $1,000 as quickly as possible and keep this as a rainy-day fund for emergencies only. Ideally, this would be placed in a completely different checking account, so you are not tempted to dip into it without good cause.
Here, Orman is an advocate of saving little and often. Like Ramsey, she advocates for an emergency fund but rather than aiming to have $1,000 as soon as possible she advises putting away small amounts as often as possible and these will soon add up. Lastly, automate this process so these amounts are transferred to a separate account.
Ramsey recognizes that while most people may not be interested in an investment plan, for most it is necessary for a comfortable retirement. Here he advises that you should be investing 15% of your household gross income in a retirement provision. Always ensure you are investing enough to get the full employer match on any 401(k) plan a available and then look at investing in a Roth IRA for yourself and your partner.
Orman agrees here, and advocates investing enough to max out your companies 401(k) match contributions, then look at Roth IRA as a good way of securing an income in retirement. However, where the plans differ slightly is that Orman advocates that you should be dividing your investment across equities and more defensive assets. The percentage split she advocated is that 100 minus your current age is the percentage you should be investing in the stock market.
Ramsey is a big supporter of the snowball method of debt repayment. Here you list all debts from the smallest to biggest and begin by clearing the smallest first while still paying the minimum on all other debts. Once this first debt is paid off you can celebrate the first of many victories and then you can focus your efforts and any cash saved on repaying this first debt early on clearing the second, and so on.
Orman is clear here that you should always be paying the largest amount each month towards clearing your debt that you can afford. A good tip is to add $10 to the minimum repayments you are making to ensure you are on the road to clearing that debt faster than you would have been. The advice differs to Ramsey here in that Orman advises to always go after repaying your debt with the highest interest rates first and once that is cleared move on to the next highest.
When it comes to spending habits, Ramsey is firmly of the opinion that you should not be relying on credit cards and that once any credit card debt is paid you should stop using them altogether. Once you begin to build personal wealth you then have the freedom to give money in other ways through donations or family inheritance.
Orman argues that self-discipline is the key to reducing spending to affordable levels. Step one of this discipline should be analyzing previous bank and credit card statements to highlight unnecessary spending an put a plan in place to eliminate this moving forward.
Ramsey advises paying off your mortgage as early as possible. Using the snowball method your mortgage may be the last debt you are left with but paying extra on top of your payments each year can save you hundreds or even thousands in the long term.
Like Ramsey, Orman argues that your mortgage should be paid off as soon as possible. To do this she advises that once your debt and spending is under control you should be making at least one extra payment per year towards your mortgage balance.
After clearing off the debts, the next step to secure your immediate financial security should be to grow your emergency fund. Do not use the cash you are now saving to increate spending, rather aim to now saving enough to 3 to 6 months of total expenditure should the worst happen such as losing your job. Once you have done this, Ramsey advises that the next step should be setting up a college fund for your children. Do your research and figure out if a 529 college savings plan or an Education Savings Account is right for you.
Here Orman advises that we should be investing in peace of mind by opting for around a $50 per month investment in life insurance. This level of spending should mean you can expect a decent term policy. As well as this, you should be looking at drafting some of the most important documents in your life. These will include a revocable living trust, a will, and a power of attorney both for financial and healthcare matters.
So now you have all the advice you could ever need on managing and growing your personal finances. The plans, while similar in parts, do disagree on some key factors such as how quickly to eliminate all debt and how much of your disposable income you should be putting into equities. However, they do clearly agree on the benefit of ensuring you max out your companies 401(k) contributions and the value of paying your mortgage off earlier through regular additional payments. Whichever guru you chose to follow there is undoubtedly some good advice to be found and I suspect for most people a mix and match approach will suit their financial situation.