Turbulent financial times, like those we have had to face over the last year or so, have brought with them a level of financial uneasiness that most of us have never faced before. With all that has gone on with the recession, the stock market, the fall of Lehmann and the Madoff scheme, we have become more cautious about our spending and investing …it’s a good thing.
Now that things have leveled off a bit…we are beginning to get some interesting questions regarding buying, saving and investing along with some “shouldn’t you always” that make no sense with today’s money and market conditions.
Money Myth #1: You should always invest some of your savings in securities, stocks and mutual funds. Your savings should be where you feel most comfortable and reflects your risk tolerance …and if that means a 1% money market account, then so be it. As we all now know so well, you cannot time or predict the stock market, so only gamble what you can afford to lose…or at least what you can afford to live without so that you can easily ride the waves.
Money Myth #2: You should always pay off your credit cards before adding to savings. I am a real
believer in the almighty budget, so that when you live by the rules …you do a little spending, you do a little savings, you pay off a little debt. Living with no savings can put you in a very difficult situation if an emergency comes up and immediate cash is needed. Also, as we all know, credit has really tightened so it may not be as available to you when you need it as it once was.
Money Myth #3: To reduce credit card debt, you should always pay the highest interest card first. In my mind, consolidating your payments is the easiest and most sensible way to pay down your debt…so my rule is to pay off the smallest debt first so you are reducing the number of payments you need to make each month. As each debt is paid off, use the released cash flow to increase your payment on the next smallest, and continue the process until you are down to one.
Money Myth #4: You should save for college first, then for retirement. If your savings cannot stretch for both, save for retirement first…absolutely. You can always borrow for college at very low interest rates, apply for scholarships, or borrow from your retirement savings, if necessary. Retirement savings can come only from you.
Money Myth #5: Buying a house while the prices are low, is always better than renting. When things are tough, flexibility is the key, and renting is a great alternative for people you have relocated for a job, or for those who may not job security and may need to move quickly to find work. Buying a house is an expensive proposition any way you look at it and may not be a good financial move no matter how reasonable the price.
If you have questions or need some financial direction, I am always happy to help …give the office a call.