Aim to be Debt-Free by Retirement

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Jonathan Clements was a longtime personal finance columnist for The Wall Street Journal, and he offers great advice at the best price you can get (free) on his blog Humble Dollar. Here is one piece of advice from his site:

AIM TO BE DEBT-FREE BY RETIREMENT. If you aren’t, you’ll have an added living cost to cover. That could necessitate larger IRA withdrawals or selling winning stocks in your taxable account. This extra income could, in turn, trigger taxes on your Social Security benefit and larger Medicare premiums. To avoid those pitfalls, pay off all debt before you quit the workforce.”

Confronting this issue, my friends, is where you decide if you are going to put on your big boy/girl pants and really set yourself up for success or not. As someone who is debt free, I can tell you that the feeling is like no other once you get there. If my life goes as planned, I will never borrow another dollar from anyone for anything. That is a major contributor to my status as financially independent.

A few years ago, I was having a conversation on Reddit with an active duty member that was asking what they should do with the 5 figure bonus they recently received. I suggested they pay off their car and never borrow money for a car again. Another person responded and said that my recommendation was stupid. If the interest rate is low enough, it makes sense to borrow money for a car.

To each his own, but since you can get from point A to B with a very reasonable car (like these), you should make it your goal to pay cash for whatever you are driving. You can read more about my take on used cars here – buy used.

Whether you realize it or not, you are trading your time (your most limited resource) for money. Getting to the point where you no longer have to do that takes dedication, and getting to the 20 year mark of a military career without any debt is a major ingredient to the recipe that leads to financial independence and possible retirement.

If you want to read a pretty good book about this very thing, you should get the book Your Money or Your Life.

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