April Fools’ Day has a long and rich history of harmless trickery, and it can be very entertaining if you manage to fool your family or friends. However, if you’re gullible, April Fools’ Day may not be as much fun. Falling for false information or pranks on this day is understandable, given the day’s reputation for people making deliberate efforts to trick you.
With this in mind, it’s easy to see why making bad financial decisions once or twice or taking lousy advice is bound to happen sooner or later. The important thing is that you learn from this experience and work to better your knowledge, so you don’t fall for it a second time.
You have to remember that it’s not all about what you do with your money, but it’s also about what you don’t do with it. This distinction may be the difference between financial success and failure. The following myths can help you avoid traps and grow your wealth instead of losing it.
Myth 1 – There Is No Need for an Emergency Fund
There are dozens of reasons why having an emergency fund is necessary, and you can probably list a few right off the top of your head without doing any research. For example, if you need to relocate, suddenly lose your job, or require an extensive vehicle repair, where will you get the money? Not making a point to have an emergency fund when one of these situations pops up can lead to bad credit, debt, or even bankruptcy if things get bad enough. Even if you have a tight budget, set aside roughly 10% of each paycheque until your emergency fund is big enough to cover six to nine months of expenses. Keep the money in a fund that you can access if you need it, but don’t make it so accessible that you can pull from it whenever you want. When you take money out, replenish it as soon as you can.
Myth 2 – Your Budget Is Your Credit Limit
Unlike this popular myth would have you believe, your credit limit isn’t your budget. If you think that you’re a financially responsible person who saves all you can, but you still need credit cards to pay for basic needs, this is a sign that you need a substantial financial overhaul because you’re not living within your means. Think of a few ways to increase your monthly income, like selling items or getting a second job. Of course, you never want to max out your credit cards right to the limit, and you should ideally stay below 33% for your credit utilisation. So, if you have a credit limit of $1,000, you want to keep your spending at or below $330. Reaching for a credit card in an emergency isn’t wise either, but if it’s already maxed out, you won’t have this option.
Myth 3 – The Present Is More Important Than a Retirement Plan
The present will turn into the future before you know it. The earlier you start investing in your retirement account, the more time you’ll give your nest egg to grow without a lot of additional effort on your part. You want to avoid cashing out your retirement account at any cost. The early withdrawal will trigger a huge tax burden, and this will push you further behind with your retirement plan. Pay yourself first and keep it off-limits until you retire.
Myth 4 – You’re Healthy Enough to Opt-Out of Insurance
Even healthy people can have unexpected medical expenses and emergencies that can easily cost thousands of dollars. If you have no insurance coverage, you’d be on the hook for all of it. So, at the very least, you want to enrol in a high-deductible, low-cost plan. Also, don’t forget about enrolling in other insurance types like long-term disability, term life, or renter’s insurance to protect yourself if something goes wrong.
If you need help getting started on your investment journey or require expert financial advice, please get in touch with your Financial Adviser. They’re there to help you secure your future no matter what stage of life you are in.
If this article has inspired you to think about your own unique situation and, more importantly, what you and your family are going through right now, please contact your advice professional.
This information does not take into account the objectives, financial situation or needs of any person. Before making a decision, you should consider whether it is appropriate in light of your particular objectives, financial situation or needs.
(Feedsy Exclusive)
