3. How Much Debt Is Too Much and How Much Is Too Little?
As you learned in the previous chapter, it makes little economic sense to target a fixed or unyielding savings rate (while you are working) or replacement rate (for income in retirement). Instead, the correct way of thinking about saving rates is as the output of a financial plan that seeks to smooth consumption or equally distribute the benefits of human capital over the entire life cycle. That is: When you are young, have few financial resources, and are investing time to develop and improve your human capital, spending more than you earn is, in fact, quite rational. Similarly, during your middle and later working years, when your earnings are likely the highest they will ever be, it ...
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