use this link Top 10 Personal Finance Myths
Unfortunately, one of the factors that will preclude many population from becoming financially successful is their own false beliefs about money and their personal finances. Take a look at my top 10 money myths, and hopefully you can avoid the consequences of believing in them.
Top 10 Personal Finance Myths
1. If I get a raise that bumps me into a higher tax bracket, I'll really take home less money.
Buzz - Wrong! animated into a higher tax bracket only increases the rate of tax paid on the last dollars you earn. For example, let's say you're filing single, your old wages was ,000 a year and your new wages is ,000 a year. Agreeing to the Canada revenue Agency's 2010 federal tax rate schedules, when your wages was ,000, your federal marginal tax rate was 15% and now with a wages of ,000, your marginal tax rate is now 22%.
The key to unlocking this personal finance myth is the definition of the word "marginal." In this situation, your first ,970 of revenue is still taxed the same way it was before you got your raise. With a ,000 income, your take-home pay was ,000 (,000 less 15% in federal tax). If you make ,000, you will take home after federal tax a total of ,407.90. This is because it is only the extra ,030 above ,970 which is taxed at the 22% - not the whole ,000.
2. Renting is like throwing away money.
Do you consider the money you spend on food to be thrown away? Or, how about the money you spend on gas? Both of these expenses are for items you purchase normally that get consumed and on the covering they appear to have no chronic value, but they are ultimately essential to carry about daily activities (unless you can walk or take the transit everywhere). Rent money falls into the same category.
Even if you own a home, you still have to "throw away" money on expenses like asset taxes and mortgage interest (and likely more than you were throwing away in rent). In fact, for the first five years, you are basically paying all interest on your mortgage. For example, on a 25-year, 0,000 mortgage at 5% interest, your first 60 payments would total about 5,000. Of that you "throw away" about ,000 on interest payments and you only put ,000 into equity of your home.
3. You always get what you pay for.
Higher-priced items are not always higher quality. While there is sometimes a correlation between price and quality, it is not necessarily a exact correlation. A chocolate bar may be tastier than a bar, but a bar may not taste significantly different from a bar. When determining an item's true value, look past its price tag and observe the true indicators of value. Does that generic Tylenol stop your headache? Is that home well-maintained and placed in a good neighborhood? When doing a proper analysis, you'll know when paying the higher price is worth it or alternatively, when it isn't (and you'll be on your way to understanding the principles of value investing).
4. I don't have sufficient money to start investing.
It's true that some brokerage firms want you to have a minimum number of money to invest in determined mutual funds or even to open an account. The truth is, it is easy to start investing with very puny money thanks to online savings accounts. While traditional bank savings accounts generally offer interest rates so low that you would barely consideration the interest you accrue, an online savings account will offer a more competing rate based on how the store is currently doing. As of April 2010, it is base to find online banks gift 1-2% interest. With new news that interest rates in Canada will be going up, we could be in the 3% range within a year or so. A 3% return is a pretty good return on your low-risk savings account investment when you consider that stocks historically return an average of 7-10% annually. Also, some online savings accounts can be opened with as puny as . Once you're in a position to start investing in stocks and mutual funds, you can change cash out of your online savings account and into your new brokerage account.
Alternately, you could open a brokerage account with minimal funds through one of the online trading companies that have cropped up. However, this may not be the best way to start investing because of the fees you'll pay each time you purchase or redeem shares (generally - per trade).
5. Carrying a balance on my prestige card will improve my prestige rating.
Carrying a balance and paying it off gently does not prove your prestige worthiness. All this will do is take money out of your pocket and give it to a prestige card business in the form of interest payments.
If you want to use a prestige card as a tool to improve your prestige score, all you really need to do is pay off your balance in full and on time every month. If you want to take it a step further, do not charge more than a small percentage of your card's limit because the number of ready prestige you have used is other factor complicated in the calculation of your prestige score.
6. Home ownership is always the best way to invest your money.
Just like all other investments, home ownership involves the risk that your investment may decrease in value. While generally cited stats say that housing appreciates at somewhere between the rate of inflation and 5% per year, if not more, not all housing will appreciate at this rate. Owning a home is a major accountability and there are easier ways to invest your money, so don't buy a home unless you are attracted to its other benefits.
Another factor is the psychological element - I once heard a partner of a large accounting firm say that he credits much of his wealth to the fact that his mortgage payment is "forced savings." So, that's true.. If you don't think you have the discipline to invest the money you save from not having a mortgage... You're probably not going to be great off financially.
7. "I'll save more later when I make much more money."
That's just other excuse for not saving, in fact, that's a really lame excuse. Claiming that a higher revenue will be your source to good financial habits, is simply lame. You can need to take control of your own finances, now... Not later.
8. The stock store is tanking, so I should sell my investments and get out npw before things get any worse.
When the stock store goes down, you should really keep your money in the market. This way, you can ride out the dip and finally sell at a profit. In fact, stock store lows are a great time to invest even more. Many seasoned investors consider a decline in the store to be a "sale" and take advantage of the chance to pick up some essential investments that are only experiencing a temporary dip. You might want to do some reading on Benjamin Graham or Warren Buffet - who are both proponents of this method. A base expression out of Buffet's mouth is "Be fearful when others are greedy and greedy when others are fearful".
9. Timing the store is easy
You always hear successful stories of those who have timed the store and have made fortunes. We rarely hear of the thousands who time the store but lose fortunes. Studies and reports show that marketing timing does not work for 95% of us, unless you have money to burn, don't try to time the markets.
10. I'm young - I don't need to worry about saving for relinquishment yet... Or, I'm old - it's too late for me to start saving for retirement.
The younger you are, the more years of compound interest you have ahead of you. compound interest is like free money, so why not take advantage of it? man who starts saving and earning interest when they are young won't need to deposit as much money to end up with the same number as man who starts saving later in life, all else being equal.
On the flip side, you shouldn't worry if you're older and you haven't started saving yet. Of course, your 0,000 nest egg may not grow to as much as a 20-year-old's by the time you need to use it, but just because you may not be able to turn it into million doesn't mean you shouldn't try at all. Every extra dollar you invest will get you closer to your goals. Even if you're near relinquishment age, you won't need your whole nest egg the moment you hit 65. You can still put money away now and make a essential sum by the time you need it at 70, 80 or 90.
No comments:
Post a Comment