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This monthâ€™s topics include good vs. bad debt, paying down debt quickly, compelling and edifying financial reads, and appropriate levels of retirement savings.
Do you know the difference? Mortgage debt that is less than a quarter of your gross income is unlikely to be bad debt, unless you are paying an out-of-market interest rate for some reason. Student loan debt is often among the best debt, because it generally has a low interest rate. But credit cards are almost always bad debt, no matter how many miles you may be earning.
Address your debt as swiftly and directly as you can, but not at the expense of future planning. Differentiate between long-term, good debt, and high-interest rate bad debt; the latter should be paid off as quickly as possible, whereas the former can be managed alongside a solid investing strategy. In the meantime, make sure you aren’t accumulating new debt, as it will completely counter your strategy.
Look to the past to map your financial future. “The Intelligent Investor,” by Benjamin Graham, is cited by legendary investor Warren Buffett and many others as their inspiration will give you a great feel for investment basics. It is considered by many to be the bible of value investors. Value investors are great investors to emulate.
The general rule of thumb in retirement investing is to try to replace 70 to 80 percent of your pre-retirement income in retirement, with appropriate adjustments for the expected inflation rate. But for most people, spending will peak in their mid-40s to early 50s. From there income may still go up, but spending is likely to decline. If you base what you need in retirement on what you’re spending now, you may be overlooking an overall dip in your expenses as you near your late 50s.
When was the last time you adjusted your tax withholding? Don’t let the federal government borrow your money at no interest while you could be putting it to work. If your life situation has changed, either through marriage or divorce, or the birth of a child, or even if you’ve simply had a significant adjustment in your practice’s revenue, you should probably update how much you set aside for federal and state taxes.