Five Lives
Five Lives
Tom Welsh - Humble Dollar
WE GO THROUGH phases in our financial life, just as we do in our biological life. There seem to be a least five financial phases that adults pass through, each with their own priorities, risks, opportunities and tradeoffs.
Here’s how I would think about those five phases:
1. Party Time (ages 25 to 30)
Yes, you’re starting a career, and you want to get ahead and make money. But in all likelihood, your focus is your social life—and so it should be. Still, amid all the fun, throw in some sober financial management. Avoid digging a hole for yourself with high-cost consumer debt, notably credit card debt and car loans. Participate in your employer 401(k) plan at least up to the minimum required to get the full amount of any matching employer contribution. Finally, in your taxable account, try to save for the down payment on your first house using moderate-risk investments, such as investment grade bonds.
2. Early Career (ages 30 to 45)
Often, this is a time of rapid career advancement, plus you may be starting a family, with all the costs that that entails. Along with these comes the temptation of what I call classflation—borrowing to acquire large homes, expensive cars and other status symbols, so you appear a social class above what you can truly afford. A prudent goal in this phase is to have no debt other than a home mortgage, and then pay off that mortgage as soon as feasible. I’d advise doing so even if it means you invest less in stocks.
Understand that two huge industries disagree with this advice: the lending and investment industries. One wants you to borrow, so it can collect interest. The other wants you to carry that debt, while putting new savings into investments, so it can collect fees. Get ready for the mantra, “You’ll make more money in stocks.”
Why pay off your mortgage so fast?
To continue reading, please go to the original article here: