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.