Assorted Tips
Retirement
Do not touch retirement money, until you retire. There's rarely a good reason to borrow against your
retirement accounts, and almost never a reasonable excuse for cashing them out. Look elsewhere to find
money to pay your debts or buy a home. Let your retirement money keep working for you undisturbed.
Someday, you'll be glad you did.
Student Loans
Your total borrowing shouldn't exceed what you expect to make your first year out of school. Many
graduates have learned to their chagrin that student lenders will gladly loan you far more money than you
can comfortably repay. Students and parents need to put their own limits on how deeply they go into debt,
or they could face a literal lifetime of student-loan payments.
College Savings
Saving for retirement is more important, but try to put at least $25 a month per child in a college savings
plan. Contributing even a small amount each month will help reduce the amount of debt your child
eventually incurs. Thanks to recent tax law changes and reductions in fees, 529 college-savings plans
have emerged as the best way for most parents to save.
Cars
Buy used and drive it for at least 10 years. This one rule of thumb easily could save you tens of
thousands of dollars over your lifetime compared with what you would pay buying cars new and owning
them just five years. Not only will you buy half as many cars, but you'll avoid the 20% loss to depreciation
that happens as soon as you drive a new car off the lot. Today's cars are better built and will last longer
than ever before, so buying a used car isn't the gamble it used to be.
Debt Repayment
Pay off maxed-out cards first. When paying down credit card debt, the argument used to be between
those who advocated paying the highest-rate card first (to save the most money) and those who argued
for paying the smallest balance first (for a faster feeling of accomplishment that can motivate you to keep
going). These days, though, you should first tackle any card that's close to its limit, since maxing out
cards hurts your credit scores and can trigger penalty rates and fees.
Insurance
Cover yourself for catastrophic expenses, not the stuff you can cover out of pocket. Insurance isn't meant
to cover the normal expenses of daily living. That's why you want high limits on your policies -- but high
deductibles, too.
Life insurance
Those who need it typically need five to ten times their income. Most people need to answer only two
questions about insurance: "Do I need it?" and, if the answer is yes, "How much do I need?" You probably
need life insurance if other people are financially dependent on you. You probably don't if you're single or
your kids are grown. If you do need life insurance, the most important thing is to buy enough. Term or
"pure" insurance is usually the way to go, since insurance that includes an investment component can be
as much as 10 times more costly.
Mortgages
If you can't afford to buy the house using a 30-year fixed-rate mortgage, you can't afford the house. There
are good reasons for choosing less traditional loans, but buying a house you couldn't otherwise afford
isn't one of them. Too many people today are facing foreclosure because they used an adjustable or
interest-only loan to buy too much house for their means.