On April Fool’s Day, we love to play pranks on friends, family and coworkers. Don’t let April Fool’s Day be a day where you are fooled on financial matters. In honor of the lighthearted holiday, we thought we would take a look at some of the many financial myths out there, so you don’t get pranked.
Myth 1: Cost of living will go down when you retire. There are many expenses after retirement age that people don’t take into account when planning for the future. Mortgage payments, hospital visits, medical care for your parents, and even grandchildren can add significant expenses to your life. Plan ahead for retirement and meet with your independent financial advisor to get a better understanding of how much money you should be saving to enjoy your golden years.
Myth 2: Closing unused credit cards will help your credit score. It is a great idea to pay down credit card debt, but closing unused credit cards may not be the solution. If you have unused credit cards in good standing, they can reflect positively on your credit history and could benefit you in the future.
Myth 3: Anticipating the next “big thing” is the key to earning high returns. Studies have shown that the right mix of investments should fit your individual goals, timeframe, risk tolerance and risk capacity. Instead of trying to swing for the fences, focus on the long-term with a mix of stocks, bonds, alternatives and cash which can possibly lead to a more lucrative return with a smoother ride.
Myth 4: Always get a fixed mortgage rate. There are many types of mortgages and a personal banker or mortgage broker can help determine the best product for your situation. For a person planning to move before interest rates go up, an adjustable rate mortgage could possibly save you money every month. Review all your mortgage options before making a decision.
Myth 5: Financial planning is for the wealthy. Financial planning is not just for people with large amounts of money to invest. A financial planner can help you create a budget for daily expenses, invest for retirement, or help prepare a family for educational expenses. A financial advisor will assist with all your planning needs. Take charge of your financial future. Know all of the facts, before making any major financial decisions.
Myth 6: It’s better to buy a home than to rent. Home ownership might be the American dream, but that dream can turn into a money pit if you’re not careful. Buying a home is the largest single investment most people will ever make, and in many cases you’re committing yourself to a 30-year mortgage. While you’ll get the tax benefits of being able to write off your mortgage interest and real estate taxes, you have the added burden of upkeep, maintenance, and repairs.
Myth 7: You get what you pay for: Sometimes a high price tag means quality and sometimes it means you overpaid. Just because you pay a lot for something doesn’t necessarily mean it’s a superior product or will make your life better.
Myth 8: Carrying a credit card balance will help your credit score. This will not help your credit score at all. Using your cards on a regular basis, however, will build your credit. Carrying a balance from month to month will just cost you in interest, therefore, aim for a zero balance every month.
Myth 9: My employer can see my credit score. False. Your employer cannot check your credit score. However, your credit report can be checked. This usually happens with potential job candidates, most often, for positions with fiduciary responsibilities.
Myth 10: My income factors into my credit score. Your income isn’t one of the factors in your credit score. It’s important to know, however, income is one of the factors that comes into play when creditors set your credit limit.
Myth 11: Your money is safest in the bank. Not exactly. Money market accounts, savings bonds, your 401(k), a 529 plan and index funds may all be better alternatives (obviously, do your research or talk to your financial advisor). True, if your money is in the bank, it’s safe because it isn’t going anywhere. Checking and savings accounts and certificates of deposit are insured by the Federal Deposit Insurance Corporation up to $250,000. If you have a lot of cash sitting in a saving’s account, you’re technically losing money with low interest rates potentially not keeping up with inflation.
Myth 12: A penny saved is a penny earned. Many people believe that scrimping to save and hoarding money will make them wealthy. Not true, says Steve Siebold, author of How Rich People Think. “The real key (to wealth) is earning,” Siebold says. Unfortunately, if you are making $50,000 per year, it will be nearly impossible to accumulate large sums of money, even if you save all your extra pennies. “Those who want to have a large nest egg need to stop thinking in terms of trading time for dollars. Instead, acquiring wealth is a non-linear process and comes from generating ideas that solve problems,” he added.
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