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I am almost halfway through David Bach’s Automatic Millionaire. It’s an easy read and easily convinces you to sock away money for retirement. The charts and tables that show the effects of compound interest make you feel like an idiot for not doing something sooner.
So far, there is nothing about how to deal with debt coupled with investing for your future. I’ve been enrolled in my company’s 401k plan since 2002. For the most part, I have always contributed 5% which is the maximum amount that my employer will match. I know that I have a lot of student loan debt but I am thinking about upping my contributions just a little over the next 6 months to take advantage of the down market. Then, all of my student loans go into repayment and I may have to scale back. My hope is that I will get the attorney position in the bank and I will be able to contribute 10 percent which will result in a 15% overall contribution with the employer match. Over time, I would like to eventually save at least 20% of my gross income.
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I've wondered about balancing debt & savings quite a bit, too. And I've never been a big fan of the popular Dave Ramsey extreme, where you just put everything towards debt. Maybe for high interest credit card debt that's a good idea, but not for student loans and mortgages, IMO.
I probably could have paid off my student loans by now if I stopped saving for retirement, but then I'd be missing out on the compounding years. Plus my student loans are consolidated at 3.5%, whereas I hope to earn at least 8% with my retirement savings. Not to mention the tax issues!
So...I ended up deciding to pay an extra $110/month to my student loan payments so I could pay them off before I'm 40, but only after maximizing my retirement savings. I'm not sure what David Bach would suggest instead, but I'm pretty happy with the compromise.
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