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When you stop to think about it does this just make common sense? Do you really want to spend years toiling away to pay down debt while ignoring your retirement fund? If you have a lot of consumer debt it can definitely create a financial hardship. And it is important that you do get out of debt. TheSimpleDollar.com revealed that the average household owes more than $15,000 in credit card debt alone. With the rising interest rate, you know that you need to get rid of this fast.
However, if you ignore all of your other financial goals in the process this is hardly ever the best option. A better option is to protect your credit score, refinance your debt to the lowest interest rate you can, and then begin saving for retirement. And if your company offers a 401(k) with matching funds you need to sign up immediately and have as much of your income automatically put into your 401(k) as you can afford.
Credit cards will cause you to spend more
One of the tried and true axioms of personal finances is that if you pay for things with plastic you'll spend more than if you paid cash. There have been numerous studies that prove this, plus it just sort of makes sense. The truth is that yes, some people will spend more money on more things when they pay with a credit card than they would otherwise. If you fit this description then by all means put those credit cards away and pay cash as much as you can. However, the fact is that not everyone spends more money just because they use credit cards. As an example of this if you use a credit card for gas and then drive until your tank is almost empty and then fill up again this is really no different than if you paid with a debit card or cash. The same is especially true for groceries and your utilities.
Own bonds in a percentage that’s equal to your age
The biggest asset allocation you will have to make in saving for retirement is how much money to put in bonds and how much in stocks. The goal of this rule of thumb is to help you create an investment strategy. If you follow it and are 30 years old you would put 30% of your investment in bonds and 70% in stocks. Then when you reach age 50, the amount you invest in stocks would go to 50% and in bonds 50%. The problem of this investment approach is that stocks historically have returned much better returns than bonds. Plus, whether you're 30 or 50 your investing horizon isn't really much different. You would still have more than 10 years before retirement.
If you’re a long-term investor with 10 years or more before retirement a better option would be a portfolio that tilts more heavily towards equities or stocks. For example, if you have 70% of your portfolio in stocks this could be a good starting point so long as you stick to this even during bear markets.
The net/net here is that regardless of what people might recommend never follow a rule of thumb blindly. One of these rules might be a good idea, depending on your circumstances, while another might lead to serious financial problems. Sit down, think things through, use some common sense and you’re bound to make good financial decisions.