#1. The 3 to 6 month reserve rule.
Many finance experts say that you should have anywhere from 3 to 6 months of financial reserves set aside. This is to cover you in case you lose a job, however, that could mean different things for different people. Many people dip into their emergency fund between jobs but in today’s economy, it could take a lot longer. For single-income households you should have at least nine months of expenses and for dual income households, you should have at least six months if not more. You always want that cushion should anything bad happen and being set up for a full 12 months will really make you comfortable enough to find the right job.
#2. It doesn’t cost anything to say for retirement.
Surprisingly, this is a myth. Savings is great, of course, and the more you save, the better, however, there is a cost to that savings. This comes in the life experiences and things that you will be giving up when you save money. It’s really a draw; if you save $5000 in your retirement fund and let that grow, there may be more money later on but it will be at the expense of a dream vacation or maybe a little bit more expensive home. It’s always good to mix your savings and consumption in a healthy and balanced manner so that you can enjoy your life rather than simply stuffing everything away for retirement, several decades down the line.
#3. All credit cards are bad.
There are many that tout the no credit card movement because all they are is a negative effect on your credit history, however, using credit cards correctly can boost your credit score and build your credit effectively. Misuse of credit cards can certainly be financially devastating but it doesn’t mean you should avoid them altogether. When used correctly, credit can be a valuable financial tool increasing your credit score and making you more financially reliable. When you pay off your credit card each month, this creates a tremendous boost in your credit history and score making you an even better candidate for larger loan such as a mortgage down the line.
Read more: How to Buy Your Dream Home When You Weren't Ready
#4. It’s simply too late.
This myth is deadly. It’s never too late to work on your financial goals and your future. Even if you start in your mid-50s, you can take steps to impact your final goals. Reduce debt, downsize if necessary, do things to boost your physical health to cut down on medical expenses and start putting away as much money as possible.
#5. It’s better to own than rent.
This is not always true. Homeownership can tend to cost more than renting because as a homeowner, you are responsible for repairs, replacements, and upkeep, which can be very costly. If you’re planning on staying in a home for several years, owning may be the best financial decision in the long run but for those that bounce around, renting will be much more cost-effective.
#6. You should have 10 times your income in life insurance.
Life insurance is a unique thing; we’ve been told that life insurance helps pay the bills when a spouse or partner dies, however, there are different ways to invest that insurance so that it continues to provide the beneficiary for years to come. For instance: if there is a $300,000 life insurance policy on a spouse and that person passes away, it may be better to invest the $300,000 so that there is a monthly return on the investment rather than paying off everything and having nothing to show for it in the coming years. The need for life insurance should be driven by the number of children you have, the long-term employment for your spouse and the level of income it might involve. Speak to a financial advisor for the best plan for your needs.
Read more: 5 Things I wish I'd Known Before Buying a House
#7. Asset allocations should be a set number minus your age.
“Many have said that your asset allocation should be 120 minus your age. That is far too generic and there are too many factors that play into a proper asset allocation to utilize such a simplified formula. There is really no set formula you can use to arrive at a proper asset allocation, as it depends on many factors such as age, portfolio size, time horizon, family situation, risk tolerance, etc.” It’s important to speak to a financial advisor about the best setup for your situation, which can vary greatly from person to person. [Source]
As you see, it really comes down to your personal finances, your age, and your goals. If homeownership is in your future contact me today at 561-440-1000 and let’s see how we can make that a reality for you sooner rather than later.