My Five Truths
My Five Truths
John Goodell | June 3, 2020
MANY MEMBERS of the military live in a crisis-like state. They’re frequently deployed to dangerous places. Their families often have to move every few years.
Today, that sense of crisis is shared by many others. In fact, with 23.1 million Americans unemployed as of April, a government paycheck seems stable by comparison.
How can families prep their finances for ongoing economic instability? Here are five of the money principles I advocate in my work counseling soldiers, veterans and their families:
1. Instead of expecting 7% to 10% annual investment returns—which may have occurred historically but will likely be less for the foreseeable future—try reducing your living costs by 7% to 10% and investing the difference. The compounding effect on your family’s wealth will be powerful.
You’ll “need” (a word folks use when they actually mean “want”) less to cover your living costs when you’re older, because your expenses will have already come down.
2. If you have debt, pay it off now. If it’s credit card debt, you’re nearly certain to do better paying down that debt than by investing in the stock market.
As Warren Buffett recently noted in his surreal online shareholder meeting, we don’t know where the economy or the market is headed in the short term, but the math is irrefutable: If you owe 18% on your credit cards, zeroing out that debt is virtually guaranteed to be the best return you can get.
3. A paid-off house is better than one with low interest rate payments spread out over time. (In fact, I think it often makes sense for Americans to rent not buy, but that’s a different topic).
In the recent bull market, when we enjoyed historically low interest rates, I saw many people take out mortgages so they could invest more in the stock market, because they believed stock returns would likely be higher. Often, that leverage works—but sometimes it doesn’t. And when it doesn’t, the results can be scary.
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