Mar 01, 2017

Juggling to Manage Debt and Risk Responsibly?

By Jarrod Upton

So much of what we do in life is based on our early formative years and this includes how we handle our finances. Did you grow up in a risk-averse household where investing in the stock market would never have been considered? Or did your parents understand the value of investing and were willing to assume some risk to attain it?

Were purchases postponed until money was available to buy them? Or were your parents willing to assume some debt in order to acquire the things they wanted for themselves and their family?

My point is that how we conduct our financial lives is often similar to what we learned from our parents. We model in our adult lives what we saw and learned in childhood.

I’m not suggesting this is a bad thing; just that it frames the discussion when examining the issue of risk versus debt assumption.

Early Debt Acquisition

We typically begin to acquire debt as young adults in our college years. Most of us take on some debt to help finance our education. It’s also well known that credit card companies aggressively market to college-age students, which can often lead to acquiring high-interest consumer debt.

By the time a person graduates from college and begins to look for a job, the amount of debt they could be carrying is substantial. According to Student Loan Hero, the average graduate from the Class of 2016 had student loans in the amount of $37,172.

So, just as young adults are starting out in their lives and careers, they are saddled with a sizeable amount of debt which is going to significantly impact how they live for many years to come.

Income Allocation

Once a young adult graduates from college and enters the job market, they begin to earn a regular income, perhaps for the first time in their lives. And along with that income, decisions must be made.

Will they live by a budget or will they spend freely, indulging their whims and desires. Will they aggressively pay down their debt or will they make minimum monthly payments for years? Will they save for a down payment on a house or splurge on an exotic vacation? Will they make regular contributions to a 401k or will they speculate in the stock market?

As I said previously, many of these decisions are founded on personal attitudes that were developed in childhood. Some people are terrified of risk and wouldn’t dream of investing in the market; others thrive on taking risks and accepting their rewards or losses.

However, as a financial planner, I do have some advice which makes the most sense to me and that is – to strive for balance in your financial life.

Managing Debt

For most of us, debt is a fact of life. Most of us have credit cards, a car loan or a mortgage, and we use our monthly income to service that debt. As long as things aren’t wildly out of control, this isn’t necessarily a bad thing. As long as your debt is being managed responsibly, debt can allow you to possess those things in life that are truly valuable and necessary to participate in modern life.

But when debt begins to spiral out of control – when one begins to live beyond their means – that’s when debt becomes a problem and, in some cases, a major problem.

Besides the financial consequences – a lower credit rating, less purchasing power, and perhaps even a bankruptcy – the personal toll that unrestrained debt can have on your personal life can be devastating. Financial stress can cause physical stress or illness, and financial stress is the major source of problems in relationships.

Peace of Mind

Conversely, one of the best reasons to eliminate debt as quickly as possible (or to not acquire it in this first place) is the peace of mind it brings. There is genuine joy, relief and satisfaction in paying off your credit cards, car loan, student loan or mortgage. The feeling of retiring a major debt is powerful, positive and palpable.

The goal is to strive for balance in one’s financial life. Toward that end, here are a few general principles that should contribute to that effort:

  • Live within your means.
  • To have a budget is better than not having a budget.
  • If you have debt, manage it responsibly.
  • If you have high-interest rate debt, refinance it to a lower rate or work to retire this debt first.
  • Be familiar with your credit history and status. Visit or for assistance.
  • Take advantage of your 401k and the matching funds your employer provides.
  • Most investments come with risk; be knowledgeable about and comfortable with the risk you are assuming.
  • Buying a house has traditionally been a very good investment.
  • It’s never too early to begin making contributions to a retirement fund.
  • Consult with a financial planner or CPA to construct a financial plan based on your individual situation and personal preferences.

Being prudent and responsible in how you manage both your debt and investments is essential to a secure financial life.

Jarrod Upton

Jarrod Upton

United Capital Financial Advisers, LLC (“United Capital”), is an affiliate of Goldman Sachs & Co. LLC and subsidiaries of the Goldman Sachs Group, Inc., a worldwide, full-service investment banking, broker-dealer, asset management and financial services organization. Investing involves risk and clients should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions.

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