Amazon lists over 40,000 personal finance books. Although I have not read all of them – contrary to what my children think I have a (certain) life – I am willing to bet that the vast majority of the debt issue receives less attention than the basics of how to do it makes investing in stocks and bonds.
This is a mistake.
After all, a primary goal of mastering personal finances is increasing your net worth. And the net worth is nothing more than a fancy name for the dollar amount of your assets minus all of your debts.
This suggests that you can get a better grip on your debts. Enter "Debt 101" (Adams Media, $ 15.99) from Michele Cagan, an accountant who has written a book that could be called "Debt 101.5" because she wants people to be strategic and tactical about it Thinking about debts.
Along with an excellent new introduction to finance from Tina Hay – “Napkin financing: Build up your wealth in 30 seconds or less" (Dey Street Books, $ 25.95) – Ms. Cagan's book is likely to be of great benefit to many people.
Strategically, Ms. Cagan's position could not be clearer: "The key to successful borrowing is simple: borrow money to buy assets that add value or generate income." She calls that "good debt," and real estate could do that belong – your home or rental property – and money for education. The goal of good debt is to "increase your wealth or ability to grow wealth".
On the other hand, "bad debts" eat up your net worth and endanger your current and future financial health, "she writes. Examples of this are high-interest credit card debt and personal loans for vacation payments.
Building on what you know
That is, of course, the basics. But where Ms. Cagan is particularly good are ideas that maximize the effectiveness of good debts and minimize bad ones.
For example, borrowing to finance your education is a good debt because "it is an investment in yourself and your future". As many have learned, it can easily go into the bad debt category. Among those with outstanding student loans from their own education, 20 percent are in arrears with their payments Federal Reserve report from last year.
"The dividing line that keeps students' debts in the good category includes the amount you borrow," Ms. Cagan writes. "While most people ask how much student loan I can get, the correct question is how much student loan I can afford to repay."
Your rule of thumb? "Overall, don't borrow more than your realistic expected starting salary when you graduate."
She gives similar advice when it comes to mortgage debt: don't take out the biggest one you qualify for as this will strain your budget.
It offers two other mortgage ideas that I like.
Suppose you love the idea of repaying your mortgage faster on a 15-year mortgage, but are concerned about the significantly higher monthly payments – 35 to 50 percent more, according to Cagan – compared to 30-year loans. Instead, seek out a 20-year mortgage. (If you find that you can easily manage these payments, you can always add something and pay off the mortgage even faster.)
Second, say that your current mortgage rate is relatively high. The average interest rate that was recently offered on a 30-year fixed-rate mortgage was 3.7 percent. According to Bankrate.com, the average fixed term of 15 years was 3.15 percent. Refinancing is a project and involves fees. But, she says, you may not have to bother to refinance yourself.
The alternative? "Ask your lender to lower the interest rate," Ms. Cagan suggests. "For borrowers with a perfect payment history and solid credit history, lenders often say" yes "to this request so you don't refinance with another company."
I don't know anyone who has done this successfully, but it seems worth trying, especially if your current mortgage rate is high. If you call your lender and find that you have a high interest rate, it will likely be obvious to them that you will refinance yourself if they say no.
Dealing with the wrong kind of debt
Regarding bad debts, she admits that credit cards are convenient, but stresses that you need to understand that you borrow money every time you use your card. "You know you have to pay the bill at some point," she writes, "but promising small minimum payments can make purchases look like bargains."
If you pay off your balance in full, you can of course use the credit card company's money until the invoice is due. But Ms. Cagan goes further and gives specific tips:
"Credit scores depend heavily on the drawdown, the percentage of your loan currently available," Ms. Cagan writes. "It's best to keep your utilization below 30 percent, both for your credit rating and for your overall financial health."
Unfortunately, these special tips are among the relatively few that she offers. Ms. Cagan is so careful that she tries not to make readers with substantial debts feel bad that she "offers things to take into account" as opposed to hard and fast rules that I would have preferred.
Still, Ms. Cagan's book fills a gap in the market. Mrs. Hays fills another.
With "Napkin financing: Build up your wealth in 30 seconds or less", Ms. Hay created an entertaining introduction to saving and investing.
Yes, of course your subtitle is hyperbolic, but this is the best personal financial foundation I've read in years.
Ms. Hay, a Harvard M.B.A. who founded a website called Napkin Finance, deals with things as diverse as investing and saving for retirement and cryptocurrencies, digital money that can be sent electronically. Bitcoin is probably the best known.
What I particularly like is that it covers most topics – like compound interest, that is, earning interest in your interest – on two or three pages, often based on the obvious.
The following brackets are hers: "Accumulation always accelerates the growth of your money (unless you pull your money off instead of letting it continue to grow.) But three things can charge your interest: a higher interest rate; more money on the Add way; give your money more time to grow. "
And it includes topics that are not normally found in personal financial books, such as explanations of what the Federal Reserve does and definitions of general business terms such as income statement, “income and expenses of a company over a period of time. "
As a rule, she manages to inject a relevant funny fact. "The expression" the end result "comes from P. & L. because profits are the last line of the statement." This explanation sounds plausible to me. And everywhere there are aphorisms like "money can't buy you luck, but it is still better crying in a Bentley than in a bus. "
Of course, if you try to describe the proverbial waterfront of personal finance in less than 300 pages with easy-to-understand drawings and graphics, omissions can occur.
It is not surprising that Ms. Hay omitted international bonds in her discussion of asset allocation. But the omission of index funds is.
However, by simplifying personal finances, it can make people understand more. In this case, they can not only get information about index funds, but also about the importance of getting their debt under control.