The Little Book of Main Street Money: 21 Simple Truths that Help Real People Make Real Money

Chapter 16. Paying off Debts Could Be Our Best Bond Investment

How Does a Guaranteed15 Percent Sound?

Maybe it's time to lose interest.

Our top savings priority is pretty clear: If our employer provides a 401(k) with a matching contribution, we ought to be socking away at least enough to get the full employer match. That employer match, after all, is free money. Also, a conventional 401(k) offers an initial tax deduction and tax-deferred growth, plus the chance to earn investment gains.

Once we've funded the 401(k), however, the choices get trickier—and sometimes paying down debt is the best investment we can make. This might have you scratching your head. Shouldn't we keep our spending and borrowing separate from our saving and investing? Not at all. It's true that one is about consumption today and the other is about consumption tomorrow. But they are all part of our financial life—and they're all connected.

Going Negative

If you recall from Chapter One, our net worth is our total assets, including our mutual funds, bank accounts, and real estate, minus our debts. If we save $300 this month, but we also add $300 to our credit card balance, we haven't made any financial progress. And if the $300 we saved earns 2 percent in a money market account while our credit card balance is costing us 15 percent, we're losing ground.

Want to increase your net worth? After you have stashed enough in your 401(k) to get the full employer match, your next best investment may be paying off those credit ...