By Rachel Podnos, JD, CFP
Learn more about Rachel on NerdWallet’s Ask an Advisor
When you’re a financial planner, clients come to you with pressing personal finance questions. The same questions tend to crop up from different clients. Here are the most common ones with answers.
(Specific financial advice can be given only after considering the unique circumstances of each case. This column deals in general advice.)
How much should I be saving?
Most people should start saving at least 10% to 15% of pretax income, beginning in their 20s. If you start saving later in life, you will need to put aside a higher percentage. For example, if you start saving in your 30s, you should probably be saving 15% to 20% or more.
Which investments should I pick in my retirement accounts?
Most people should have a mix of stocks and bonds. The younger you are, the more you probably should tilt toward stocks. As you age, it’s better to increase the percentage of bonds in your portfolio.
Most employer-sponsored retirement plans, such as a 401(k), offer a set “universe” of investments from which you should pick those that are diversified and have low costs (charging less than 1% per year in fund fees).
For the average investor, target-date funds generally are a reasonable set-it-and-forget-it choice because they are diversified and have a ratio of stocks to bonds that automatically adjusts over the years in relation to the retirement date.
When is it OK to finance a purchase through debt?
Credit card debt — always a bad idea. Having credit card debt typically is the most expensive way to “borrow” money (interest rates frequently are 18% or more) to buy things. It also wreaks havoc on your credit score. If you use a credit card, spend only money that you have and pay off your balance in full every month.
Auto loans — usually a bad idea. If you can get a very low- or zero-interest auto loan, then taking out a loan for a car is not a horrible idea. In any other situation, you should strive to buy only cars that you can pay for with cash, or else you could end up paying interest on a rapidly depreciating asset.
Student loans — sometimes a bad idea….