The truth isn’t often what you expect. As the adage goes, “The truth may hurt, but the truth will set you free.” But sometimes, the truth can feel like a betrayal or a lie. And sometimes, the truth is just plain boring. We don’t expect you to believe us, but here’s a quick guide to some of the biggest financial myths out there.
One of the most common financial myths that financial advisors all too often perpetuate is the notion that people should not take money out of their 401(k) accounts before retirement. The thinking is that this will leave a person exposed to the stock market’s volatility, which is the number one risk factor for retirement savings. Also, people tend to be skeptical about the benefits they can reap from pensions, investments, senior life insurance (to know more, click here), and other retirement plans. Before opting for a specific plan, they need to conduct thorough research or consult an experienced financial advisor in order to make future-proof plans for their retirements. This might also help them to get a clear understanding of money management.
Let’s talk about Five common financial myths that people usually believe to be true
- It’s okay not to have a retirement before 40
Many people think they need to start saving for retirement as soon as they can after their company hires them. This is because, most probably, they would be more focused on the financial perspective of themselves and their children. They would want to spend their retirement independently without any kind of financial obligations. Either they may have plans to settle down with children, or move to retirement homes like Chelsea Senior Living (www.chelseaseniorliving.com/locations/new-york/rockville-centre/), or even travel across the globe. However, the point remains that for all these necessities, they would need to start saving early. Considering the average retirement age of a company pension is 55, it’s understandable, with most plans offering benefits after retirement. But, if you reach retirement age without having a pension, it may be best to delay saving for your retirement.
- It is always better to purchase a home than renting
Buying is better than renting. Many people believe that buying a house is always going to be a better investment than renting. This is, in fact, a myth. Buyers and sellers should always try to negotiate with the seller. Most sellers indeed want to get the highest price that they can for their house. However, it is not always possible to get the highest price. This is especially true when a seller wants to sell quickly. The landlord is the most responsible owner of the home. The landlord is the easiest and most accessible owner that the buyer will have. However, this does not mean that the landlord is the best owner. Some landlords are not exactly reliable and tenants may come up against issues that they have to deal with themselves, an example of this is if they come across a pest problem within the home, they may need to contact professionals such as https://www.pestcontrolexperts.com/local/arizona/ or others more local to them, to come out and assess the situation, especially if the landlord does not respond to any requests.
- Savings accounts are not worth it because interest rates are low
The concept of a savings account is an interesting one. The idea is that you can put money into the bank, and it will earn interest for you. So, in theory, saving more is better than saving less. The trouble is that the amount you need to save to get the return you want can be a substantial amount. If you want your money to be worth 3% when you need it, for example, you need to save $10,000. And if you want to get a bit of a boost from the rate of return, you need around $100,000. So, you ideally need to start saving a lot early on by the time you’re 25 or so.
- There is no Good debt
It’s easy to get sucked into the notion (whether true or not) that debt is a useful tool and just the kind of thing you need to get you started on the road to financial security. For example, the standard argument you often hear goes something like this:
“Household debt is good because it gets people started on the road to becoming financially secure.”
“The only problem is that you need to start small and then graduate to more debt as you get more established.”
“Once you’re established, it may be nice to have some debt to help keep down your payments.”
“Debt is necessary to get you started on the road to financial security.”
- Having a perfect credit score will improve your chances of obtaining a better loan rate
The FICO score is widely regarded as the most important credit score, and that’s why it’s the most widely used one. But, it’s not perfect, and if you want to know the maximum score at which lenders will give you the best rates, you must learn the difference between FICO and other scores. There are many myths about credit scores, but the reality is very simple: a good credit score will get you the best possible rate on loans, whether you know it or not.
Many financial myths are floating around. Here are some of those that you have probably heard: Myth: If you have a large lump sum of money, you should invest it all in one place to minimize the risk of losing all your money. Reality: While diversifying can reduce your risk, it doesn’t always. Some large asset classes, such as U.S. stocks, tend to have a higher risk than others, so the more diversified your portfolio, the more you run the risk of getting beaten.