Common-Sense Strategies for Debt, Investing, and College Planning
When it comes to managing money, most of us want clarity, not confusion. In a recent presentation, I laid out key personal finance strategies that anyone—whether deep in debt or ready to retire—can use to strengthen their financial future. Let’s break down the highlights and give you a practical plan to move forward.
Credit Card Debt: Face It, Then Fix It
Too many Americans are in the dark about how much they owe, what their interest rates are, or even how many credit cards they have. The truth is, credit cards can be tools—if used wisely. But carrying a balance month to month? That’s a recipe for trouble.
The only two reasons I consider “acceptable” for credit card debt are unexpected medical bills and long-term job loss. Anything else is likely a sign of overspending or relying on “buy now, pay later” schemes that snowball into long-term debt.
If you’re stuck, here’s my 5-step plan:
- List all your cards.
- Write down your balances.
- Track each card’s interest rate.
- Make the minimum payment on all of them.
- Direct any extra cash to the card with the highest rate.
Avoid raiding your IRA, borrowing from your 401(k), or using home equity to dig yourself out. And please—steer clear of those “debt relief” companies making bold claims. They’re often scams.
Stock Options: Diversify or Regret It
If your employer gives you stock options, it’s tempting to hold on. But unless you want to risk ending up like the folks at Enron or Lehman Brothers—jobless and with worthless stock—consider selling those shares once you’re allowed.
Don’t keep more than 15% of your total investments in company stock. Diversification is not just a buzzword—it’s essential to protect yourself from volatility. Professional investors cap individual stocks at 3% of their portfolios. You should too.
Understand RMDs or Face Big Penalties
Required Minimum Distributions (RMDs) can trip up even the savviest retirees. Don’t wait until you’re 70½ to figure them out. You need to take your first RMD by April 1 of the year after you turn 70½—but doing so may mean two withdrawals in one year, which could spike your taxes.
My advice? Take your first RMD before December 31 in the year you turn 70½. Hire a tax advisor to make sure you stay compliant and avoid the 50% penalty for missing a required distribution.
Smart College Planning with Financial Aid and 529 Plans
Kim Clark shared valuable tips on making college more affordable. One of the easiest things you can do? Apply to multiple schools. Doing so can increase your scholarship opportunities by 30%.
Fill out the FAFSA early. It’s what schools use to put together your financial aid package, and knowing you’ve applied to competing schools might get you better offers.
Also, don’t ignore community colleges or study-abroad programs. Many international universities offer low-cost or free tuition if you’re willing to study in another language. And if you’re saving for education, use a 529 plan—it grows tax-free and gives you flexibility on who the funds can be used for.
When to Let Go of Real Estate
Rao was facing a tough decision: sell his townhouse at a $40,000 loss or hang on. I advised him to cut ties. Emotional attachment is real, but it shouldn’t hold you back from making sound financial moves. Let the first decent offer be the one you take—move on and free yourself.
Rethinking Retirement Relocation
Not everyone needs to head for the Florida sunshine. In fact, most retirees stay within 20 miles of where they currently live. It’s not about palm trees; it’s about being close to people who matter. Before you buy that dream home across the country, think twice. Retirement is as much about lifestyle as it is about location.
All information provided is for educational purposes only and does not constitute investment, legal or tax advice; an offer to buy or sell any security or insurance product; or an endorsement of any third party or such third party’s views. The information contained herein has been obtained from sources we believe to be reliable but is not guaranteed as to its accuracy or completeness. Whenever there are hyperlinks to third-party content, this information is intended to provide additional perspective and should not be construed as an endorsement of any services, products, guidance, individuals or points of view outside Edelman Financial Engines. All examples are hypothetical and for illustrative purposes only. Please contact us for more complete information based on your personal circumstances and to obtain personal individual investment advice.
Neither Edelman Financial Engines nor its affiliates offer tax or legal advice. Interested parties are strongly encouraged to seek advice from qualified tax and/or legal experts regarding the best options for your particular circumstances.
