10 Money Myths To Watch Out For December 8, 2009

We are all familiar with dozens of money myths such as “money doesn’t grow on trees” and we use the quite often. Most myths are fairly harmless and just for fun, however some can be dangerous and if you believe in them it can do serious damage to your finances. Here is a list of some of the most common money myths, some harmless and some dangerous. Feel free to add yours!

1. I Don’t Have Money To Save
This is probably the most dangerous myth to believe in. First of all if you don’t save you will never have enough money, second of all small amounts can go a long way in your savings especially when you take into account power of compounding. Unless you have a large amount of debt, there is no reason why you should not be saving.

2. Buy On Sale to Save Money
This is a great tip if you buying something you need on sale, however I am not sure how buying something that is on sale saves you any money? Did you really need that big LED TV that was 20% on sale or did you just throw away $2000?

3. I’m Too Young For Life Insurance
You maybe young but are you immortal? Age does not determine if you need life insurance or not, your responsibility to your family determines that. If you are young great! Take advantage of the lower rates.

4. I Don’t Need A Will Everything Is Going To My Spouse
Wrong! Unless you have a valid will your spouse may not get everything. If you die instate (without a will) your assets will be distributed according to your province or states legislation and this might not always be how you want it. So get your self a will.

5. Interest-Only Mortgages Makes Home Affordable
You could not be wrong anymore! Paying interest only you will never really own the home you are basically renting the property from the lender. Should the price the drop you may not be able to refinance it. If you cannot afford the payment just rent!

6. Active Funds Outperform Index Funds
Wrong! Studies show again and again that “professional” money managers rarely outperform the index.

7. You Cannot lose by investing in Blue Chip Stocks
Just investors who owned blue chip stocks in 2008.

8. Red Cars Cost More To Insure
This is one I used to believe until a few years ago, the theory was that red cars are more prone to theft and hence cost more. However the color of your car has nothing to do with your insurance premiums.

9. My Work Pension Is Guaranteed
Please do not rely on your work pension to fund your retirement. If we learned one thing from the last economic crisis is that nothing is ever guaranteed. Things may look great now but who knows what will happen in 15 years when you need your pension.

10. Timing The Market Is Easy

You always hear successful stories of those who have timed the market and have made fortunes. We rarely hear of the thousands who time the market but lose fortunes. Studies and reports show that market timing does not work for 95% of us, unless you have money to burn, don’t time the markets.

I am sure there are many more money myths out there, these are the top I think everyone should be aware of.

How Do I Manage My Money? December 5, 2009

Sometimes I wonder how other people manage their money. I figured I would throw my own way out into the wild and see how it compares to your way. Below I have listed the various ways I deal with earning money and spending money.

Paychecks

I have a percentage of my paycheck directly deposited into my checking account. I have the remaining percentage directly deposited into my high interest savings account at ING DIRECT.

Retirement

401k doesn’t have matching so I don’t contribute to it. Instead, I have a Roth IRA at Fidelity which pulls a fixed amount from my checking account once a month. For tax reasons it doesn’t make sense for me to contribute to my old Traditional IRA.

Other IncomeI continually work to figure out ways to diversify my income streams. Two years ago I had no idea how to make money from anything, but a paycheck and some small dividend and interest income. Side work, web site ads, etc. are some of the ways I’ve found and I try to keep this money separated from my normal day job income. I like to think of it as a bonus and try to save it in a separate savings account and watch it grow. (Of course, it also helps at the end of the year when I figure out taxes which, by the way, are way too high. Sure would love a consumption tax)

Bills

I auto pay or charge almost all the bills I can so I can essentially consolidate multiple bills (gas, electric, cable, phone) into one (credit card). This saves me time every month and saves paper and stamps, too. I don’t like anyone automatically pulling money from my savings account, but I do that too in some cases where it reduces my interest rate (like on a federal student loan). I put entries/reminders in my Google Calendar so I can make sure I always have enough money in my checking account depending on when bills are due and when paychecks get deposited.

Tracking Wealth

Net worth is a great way for tracking if you’re getting richer or poorer. Take all your savings, the value of your car and other assets, and then subtract all your debt like loans, outstanding bills, and perhaps even future tax you’ll own on your 401K/IRA– this is your net worth. I use services like FullView and Mint to track this net worth. Lately, with the economy going to hell, I’ve watched this number suffer, but since I’m not one to put all my money in the market it hasn’t been as obscene as what others have seen. The trick to become rich is to grow your net worth– remember that.

Research

There are always new ways to handle your money and many times they are worth ignoring! It wasn’t long ago there were special funds being set up to invest in real estate loans– they were diversified in risk and high yielding– too bad they were all sub prime loans that even the bank was going to lose money on. Be suspicious of new investment and savings ideas (including any I’ve listed here that may be new to you). Don’t take anyone’s advice as gospel, but figure out what you’re really comfortable with in the long run.

Final Thoughts

It’s important to remember that there is not exactly a right or wrong way to manage your money. Just decide to start trying to put together a system that works for you keep at it!