What Is Smarter: Paying Off Debts or Investing?

Submitted by Edward JonesPrint Story | Email Story

It probably doesn't happen as much as you'd like, but you may occasionally have some extra disposable income. For example, perhaps you have recently received, or will soon receive, a year-end bonus. Or maybe you will get a sizable tax refund in just a few months. Wherever this money comes from, you will want to put it to good use. Should you use the cash to pay down debts or should you invest it instead?

There's no simple answer, and everyone's situation is different, but here are a few suggestions for helping you make a good choice:

* Evaluate your cash flow. If you already have enough cash to meet your daily living expenses, you might lean toward investing the money, but if you are just getting by, possibly due to heavy debt payments, then you might be better off using your newfound funds to reduce your debt load. Another way of possibly reducing your debt load is to build an emergency fund containing three to six months' worth of living expenses, with the money kept in a liquid, low-risk account. Once you have such a fund, you could use it, instead of going into debt, to pay for unexpected costs, such as a new furnace or a major car repair.

* Evaluate your debts. Some of your debts are actually more "expensive" to you than others. This expense level doesn't necessarily refer to the size of the debt, however. You might have a large mortgage, for instance, but because your interest payments are typically tax deductible, your "after-tax" interest rate may be relatively modest. Therefore, you might consider using your excess cash for investments, rather than paying down your mortgage. But if you have consumer loans or credit cards that carry a high interest rate and whose interest payments are not deductible, you might be better off paying down this debt.



* Evaluate your investment opportunities. You may have heard that one season or another is a "better" time to invest – but there's really no strong evidence to support this claim. However, now that we are nearing the end of the calendar year, and only a few months away from the tax-filing deadline on April 15, you may want to take advantage of at least one time-related investment opportunity. Specifically, you could use whatever extra money you have to fully fund your IRA, if you haven't done so already. For the 2018 tax year, you can contribute $5,500 to a traditional or Roth IRA, or $6,500 if you are 50 or older. (Depending on your income, you may not be able to contribute the full amount to a Roth IRA.) You’ve got until the April 15 deadline to fully fund your IRA, but if you have the money sooner, why wait? The quicker it's in your account, the faster it can go to work for you.

One final suggestion: If you have a company match as part of your 401(k) or similar retirement plan at work, consider contributing enough to get your employer's full matching contribution before you pay down debts – don't leave this "free money" on the table.

Your year-end bonus, tax refund or other source of beyond-the-paycheck money can help you make progress toward your financial goals – so evaluate your situation and options carefully before making any moves. It will be time well spent.

This article was written by Edward Jones for use by your local Edward Jones financial advisor. Courtesy of Rob Adams, 71 Main Street, North Adams, MA 01247, 413-664-9253.. Edward Jones, its employees and financial advisors cannot provide tax or legal advice. You should consult your attorney or qualified tax advisor regarding your situation. For more information, see EdwardJones.com.

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'Late Night': Funny Business

By Michael S. GoldbergeriBerkshires Film Critic
Somewhere between my wild youth and the acquiescence to middle-class mediocrity if not respectability, there was my bachelor pad era. The Cohens, a childless couple who had no designs on a single-family home until they inherited one, had relinquished their pink apartment on Pingry Place. And thus, after a bribe, unbeknownst to me, from my Mom to the super, the digs were mine. 
 
I later learned that said financial inducement was followed by regular sub-rosa gratuities in return for information on yours truly's comings and goings. In Mom's defense, I think she had a FISA warrant. And yes, this indulgent preamble has everything to do with director Nisha Ganatra's smartly funny "Late Night."
 
You see, my best friend Bob and I spent the better part of several weeks in the newly acquired apartment, aided by the creativity-stimulating sources of the day, arduously trying to figure out how best to transform the space from Cohen Pink to Goldberger, well, just what? Finishing second in the sweepstakes was an Italian restaurant motif, wherein several square tables with red checkered table cloths would be complemented by walls adorned in murals depicting the food-famous landscapes of Tuscany. The thinking was that since I had no etchings to show should a
young lady wish to visit my chambers for an après-theater glass of Chianti, my bistro would surely prove an appropriately adequate conversation piece.
 
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