7 Money Myths That Can Cost You
As financial advisors, we’ve heard a lot of money myths. Some of these myths are innocuous, but others can hurt your financial well-being. Here is a roundup of personal finance myths we often encounter, plus some new perspectives that can help preserve and grow your wealth.
1. “It’s OK to let my partner handle all the finances.” In relationships, one person is often more comfortable managing money. Though it’s good to play to each person’s strengths, it’s also important that both spouses get involved in the household’s finances.
If the spouse who handles the finances were to become incapacitated or die, the surviving partner would struggle to figure out their financial situation while grieving.
Alternative belief: “We strengthen our relationship and wealth with regular meetings to discuss our financial direction and goals.”
2. “I need to carry a balance on my credit card to boost my credit score.” Not so! You build your credit score by making regular, on-time payments. The only result of adhering to this myth is that you pay interest by carrying a balance.
Alternative belief: “I improve my credit score by paying off my card balances in full each month. Living within my means allows me to pay off debt faster (including car loans, personal loans, and home loans), increase the balance in my savings account, and afford my dreams.”
3. “I should start taking Social Security benefits at age 62.” If you take benefits as soon as you’re eligible, you reduce your monthly amount for the rest of your life.
Our fiduciary financial planning firm in Roseville and Folsom, CA, generally advises that people postpone their benefits. You’ll get your full benefit amount at 66-67, depending on the year you were born. For each year you postpone beyond that up to age 70, you increase your benefit.
Alternative belief: “I’ll choose the age I start taking Social Security benefits by assessing my situation, including my retirement savings, work status, expected longevity, and spouse’s benefits.”
4. “I can live off my Social Security benefits.” As this MSN article reports, your Social Security benefit will probably equal about 40% of your wages. Most people wouldn’t be happy living off that amount, which makes saving for retirement essential.
Alternative belief: “I have a plan for retirement that includes regular contributions to accounts, such as a 401(k), IRA, health savings account, brokerage account, and even a regular bank account for my emergency fund.”
5. “A company’s stock performance is a great gauge for where that stock is headed.” The more you read about investments, the more you’ll see a line like this: Past performance is no guarantee of future results. That’s because performance can never be predictive.
Remember that the adage “Life happens” applies to the stock market too. Valuations get overinflated, requiring a reset downward. Bear markets begin, as do recessions.
Alternative belief: “I own a diversified investment portfolio (such as a mutual fund) so that I no longer worry about individual stock performance. My asset allocation is tied to my long-term goals and risk tolerance.”
6. “I go with my gut when picking stocks.” In our experience, the so-called gut instinct usually comes down to fear or greed. And emotionally based investing can wreak havoc on your ability to achieve your goals.
We believe that a carefully thought-out investment strategy is superior to relying on your instincts. An investment strategy can help you keep a cool head when everyone loses theirs.
Alternative belief: “I value objectivity when it comes to my asset allocation. If I have trouble remaining objective, I work with a fiduciary financial planner who can serve as an advisor and coach.”
7. “I don’t need long-term care insurance. Medicare will take care of my needs.” A related and equally harmful belief is “I probably won’t need long-term care, so I’ll worry about it if the time comes.”
Long-term care is expensive, so expensive that people can end up bankrupting themselves before Medicaid will step in. And notice that we said Medicaid? That’s because Medicare does not pay for long-term care. Yet, according to LongTermCare.gov, someone turning 65 today has nearly a 70% chance of needing long-term care at some point in their lives.
The point is: You need a plan for long-term care. You may want to talk to a fee-only financial advisor to help determine whether you should buy an insurance policy or self-fund.
Alternative belief: “I have a plan for long-term care, leaving me with peace of mind that I will be able to cover needs that arise.”
Concluding Money Myth Thoughts
Prevailing “wisdom” can be not-so-wise, and following others’ hot tips can take our finances off-track. We hope our money myths have given you new financial strategies to help course-correct when needed and enjoy greater financial well-being.
Schedule a complimentary, 15-minute call with a fee-only, fiduciary financial advisor today to discuss your personal situation.
This material was prepared by Kaleido Inc. from information derived from sources believed to be accurate. This information should not be construed as investment, tax or legal advice.
Parkshore Wealth Management is a family-owned, independent, fee-only Registered Investment Advisor serving the greater Sacramento area with an office in Roseville, CA. We partner with financially responsible individuals and families who are eager to take positive steps that will allow them to use their money to build the life they desire. The firm is led by Harold Anderson, CFP®, and Daniel Andersen, CFP®, both members of NAPFA, the country’s leading professional association of fee-only financial advisors.