Wednesday, March 28, 2018
Ever get confused about the messaging you hear about personal finance? On one hand, having a credit card is evil and you should cut yours right now. On the other, you need a credit card to build credit and borrow in the future. Which is the truth? From what I have noticed, the truth lies somewhere in the middle and unfortunately money myths are all around us. Today I am going to show you 16 personal finance myths that you should watch out for. Remember, never take money advice from a broke person and never trust a bank.
1) You might be too young or too old to invest your money
This one always puzzles me, mainly because I wonder where it came from. You are never too young to invest. There are toddlers that have investment accounts. Conversely, I have 90-year-old clients who are active investors. When you are underage, obviously your parents must invest for you. Consider opening an account for your child and teach them how it works at a young age. As you get older your needs change to leaving money behind for loved ones. Age doesn’t matter, everyone should invest their money. Find out which method works best for you.
2) You must time when you invest carefully
If you are a day-trader, then watching daily market trends is extremely important. For the average Joe, it really doesn’t matter when you start investing, just that you start. Being a long-term investor means that you will outlast any market downturn or uptick. The day to day workings of the stock market is essentially all irrelevant to you. All it is to the average person is noise. With proper planning, long-term investors always make money so don’t be afraid to jump into the markets because of what you saw on the news.
Market Timing Fails As A Money Maker – Investopedia
3) You must earn a lot of money to save
While having a limited budget can make it tough to get by, let alone save for the future, even lower income people can save money. I have met very few people that don’t have the ability to save something at the end of every month. The key is to reduce your expenses and/or increase your income. I have several clients that save $25 every 2 weeks. I also have others who put away several thousand every month. Both contribute what they can, and both understand the importance of saving. You should too.
4) You can wait till after 40 to save for retirement
While it is possible to save for retirement after 40, you are always better off starting as early as possible. The reason is simple, compound interest. You make money off the money, you’ve made off your money. Nice tongue twister eh? With time on your side, your retirement account will grow exponentially in the later years. This means you can start off by contributing less and have your account grow over time. Waiting longer just means you must get more aggressive with savings.
5) After 50 it is impossible to save for retirement
I hear this one a lot too. Some people think that they missed the train completely and should just give up. If you are over 50 and haven’t saved a cent for retirement it will be a challenge, but you can save for your future. Your goals may have to be adjusted such as retiring at a later date or living on less, but it is possible. The key is to know where you stand in terms of income, budget, time and savings. You are never too old or young to save money.
In Your 50s? It’s Time to Start Planning for Retirement – The Balance
6) A large income makes you wealthy
Some people who make larger incomes are heavily indebted. Having a large income means you can save more money of course, but it also means you have access to more debt. Lenders will happily lend to anyone up to their debt threshold, and for people with a larger income, that can be a huge amount. For people who make great incomes, cashflow management is even more crucial as they can get into a deeper hole. Having assets makes you wealthy, not income.
7) The little guy can’t get ahead
I often hear a defeatist attitude amongst the middle and lower classes, stating that it is impossible for them to get ahead in life because the world is out to get them. While I do agree it is not easy for the little guy to get ahead, it doesn’t mean it is impossible. Working hard and spending wisely will make anyone rich.Everyone will be wealthy if they save 15% of their income over the course of their working years. That includes minimum wage workers. Having a paid off home, money in the bank and good spending habits goes a long way, even for the little guy.
8) You can tell when people are rich
I have sat at the kitchen table in a modest 3 bedroom home across from millionaires. Rich people often don’t flaunt their wealth. The reason is simple: Their wealth is best served to work for them, not to impress others. Also flaunting wealth attracts the wrong type of attention. Rich people often dress modestly, drive modest cars and eat at normal restaurants. We have been brainwashed into thinking that everyone who has wealth owns a Mercedes. The truth is most wealthy people understand that a car is just a utility for travel and spending a lot of money on it is a waste. The same goes for clothes, jewelry, and even the family home. Never judge a book by its cover.
9) Only rich people need wills
Everyone needs a will, even people who aren’t wealthy. A will is simply a document that directs your loved ones how to act upon your death. With a will, you can give instructions on how you want your possessions dispersed, your family will be taken care of and burial options. Without a will, your wishes will be left up to the surviving and that can lead to chaos. They aren’t expensive to do and updating them is easy. I will say it again, everyone needs a will.
Top Ten Reasons to Have a Will – FindLaw
10) If it costs more it is better
Sticker price does not dictate worth. Often times, the price of things is inflated because it can attract a richer clientele. Remember that the cost of items is determined by what people are willing to pay for it. If something is overpriced and no one buys it, is it really worth that price? You should be more concerned about value rather than cost. I will spend more if I know I am getting quality. Conversely, I try to never spend a lot of money on things like clothing. I would be quite content wearing a pair of jeans and a t-shirt if it were acceptable for all occasions.
11) A good credit score is a measure of success
While I am very happy where my credit score is, I know it is not the measure of my success. The only reason I am happy about it is that I battled to get it back to a respectable level. All that a credit score does for youis make you a more viable borrower. Where this is best served is when getting a mortgage. A good credit score will get your foot in the door and may get you a better mortgage rate. None of that matters however if you don’t make a decent income and you don’t have assets. Good credit is a very small piece of your overall financial fitness.
A Journey to 700: My Credit Score Story – Budget Boss
12) Making the minimum payment is alright
There are only a few occasions when I think paying the minimum on any bill is alright. Firstly, if you cannot afford to pay anything else. Secondly, if you have no emergency savings and you must take some time to build that up. Otherwise, you should always pay more than the minimum payment. Sometimes the minimum is not even enough to cover the interest on the account, so your debt is actually growing. Paying only the minimum will hurt you in the long run so do your best to pay as much as you can.
13) Your credit card or line of credit is an emergency fund
This one really bothers me. Saying credit is an emergency fund is like saying you are an athlete because you play beer league softball. Day to day emergencies likes running out of gas or buying groceries can be put on a credit card. Real emergencies require a real emergency fund and that should always be cash that is easily accessible. Experts say you should have 3-6 months worth of expenses. Start off small and build your way up to that. Once you get to that point keep going as this habit will allow you to take advantage of opportunities when they arise.
14) Buying a home is better than renting
While owning a home is a great investment, it is not always the right move. Some people are better off renting because they need the flexibility that renting provides. Owning a home requires a time commitment that some people do not have. It also entails various expenses including maintenance, taxes and higher utilities. While it can be cheaper, sometimes it isn’t. Never make such a big move because you have been told it is the best way. Everyone is different so find out what is best for you.
10 Benefits of Home Ownership – Budget Boss
15) Higher education means you will make more money
The university degree has morphed into the high school diploma in terms of usefulness. There are some positions where education does not determine salary and even high school graduates can enter at will. On the job experience and relevant college training trump the university degree in some cases so when thinking about going to university make sure you have an idea of what you wish to do. Grades, volunteer work, internships and work experience all come into play when making your resume more appealing. A few letters behind your name with nothing else can hurt you.
16) Money can’t buy happiness
There are only 2 types of people who think this. Those who have too much money and those who have none. While money can’t buy you, love, health and family, it can provide the freedom to enjoy time with those you love. It can also provide security against life’s what if’s. It can also be a stress reliever because you have fewer worries over basic necessities. It is proven that those with wealth have less money-related stress and overall better health. Use money as a tool to get what you want out of life and give back to others. That is true happiness.
When it comes to money, everyone is an expert. The answers to your questions are never as tough as you might think they are. Often the answer is right under your nose. Focus on the basics. Those include earning a good income, staying out of debt and saving for the future. The rest will often take care of itself. Thank you for tuning into my 300th post on personal finance!
“People aren’t suckers. Some are, perhaps. But most people inside know when we’re being lied to.” – Matt Bevin
Life is Too Expensive: What Can I Do?
Email –joe@budgetboss.ca
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