Dealing with Debt
But what if you are already deeply in debt? Before you can start saving and investing, you need to get rid of your debt. It doesn't make sense to save money in a bank certificate of deposit that earns 3% interest, if you are paying 18% on your credit cards. Just by paying off your credit cards (and cutting up the cards to help you resist the temptation to run up the balance again) you will improve your overall financial performance. Saving is not just about earning a return on your investment, but also about avoiding expenses that exsanguinate your bank balance. (The only exception to the rule of dealing with debt first occurs when your employer provides a matching contribution to your retirement plan. The employer match is free money that improves your return on investment enough so that maximizing the match is often an optimal strategy.) The following books provide advice and practical strategies for paying off debt. Generation Debt: Take Control of Your Money -- A How-to Guide by Carmen Wong Ulrich ($13.99, 272 pages, 2006). Written by the high-energy host of CNBC's On-the-Money, this book helps you develop an actionable plan for getting out of debt. Debt Free by 30: Practical Advice for Young, Broke, & Upwardly Mobile by Jason Anthony and Karl Cluck ($14.00, 256 pages, 2001). A good guide to paying off debt through cost-cutting and other common sense advice. Also discusses other personal finance topics such as taxes, insurance, loans and retirement plans.
There are no short-cuts to investing that are consistently reliable. While "buy low, sell high" is sage advice, it is nearly impossible to identify stock market lows and highs in advance. There are many bad books filled with psychobabble that attribute significance to patterns that are only present in hindsight. The following books are focused on proven practical techniques such as dollar-cost-averaging, buy and hold, and investing in low-cost index funds. The Intelligent Investor: The Definitive Book on Value Investing. A Book of Practical Counsel by Benjamin Graham ($21.99, 640 pages, 2003). First published in 1949, the basic advice of this book is still valid today. It is a no-gimmicks introduction to investing that focuses on minimizing losses, not maximizing profits. 25 Myths You've Got to Avoid -- If You Want to Manage Your Money Right: The New Rules for Financial Success by Jonathan Clements ($16.95, 240 pages, 1999). This book debunks the most common myths about investing and personal finance, and proposes new rules to replace them. A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing by Burton Malkiel ($18.95, 464 pages, 2007). First published in 1973, this book's main principle is that you can't beat the market, so the best approach is to passively mirror the market through a diversified set of index funds. The book also discusses life-cycle events. The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns by John C. Bogel of Vanguard ($19.95, 216 pages, 2007). This book concentrates on justifying a basic principle to successful investing: slow and steady long-term investing in a diversified portfolio of low-cost index funds that minimize fees and taxes. After all, most actively managed mutual funds do not beat broad-based market indexes, so a more reliable approach to good returns is investment in passively managed index funds that minimize costs. The Automatic Millionaire: A Powerful One-Step Plan to Live and Finish Rich by Dave Bach ($12.95, 272 pages, 2005). An advocate of the principle "pay yourself first", the author favors the use of automated payroll deductions to transfer money to retirement accounts. If the money isn't in your checking account, you are much less likely to spend it on living expenses. It removes a key source of temptation. The book also encourages readers to stop piling on debt and to avoid wasteful spending.