1. A penny saved is a penny earned.
Benjamin Franklin may have been spot-on back when he originally voiced those words, but today that certainly isn’t the case. The truth is, a penny saved is better than a penny earned. Why? Taxes, that’s why. For every penny you earn, you have to pay taxes, so you actually end up with less than a penny. But for every penny you save, you get to keep the whole thing. So, the moral of the story is that if you don’t have all the money you need to pay your bills, it may be easier and more efficient to look for ways to decrease your expenses rather than increasing your income.
2. Saving for college is more important than saving for my retirement.
First of all, we have a tendency to place more importance on our children’s college savings than our retirement fund because it occurs sooner on the timeline. We tend to think we’ll get them through college and then worry about saving for retirement. And second, we are taught by society that good parents are supposed to put the needs of their children ahead of their own. While in most cases that may be true, we have to put this particular “need” in perspective. Objectively speaking, going to college is a luxury or a privilege; it’s not a need. At some point in time most of us will have to retire for one reason or another. In addition, there are multiple programs and strategies (i.e., loans, grants, scholarships, tuition assistance programs, etc.) which are available to students if their parents are unable to provide the funding for their college expenses. I can’t imagine any of us will be able to get a scholarship or a loan to pay for our retirement. And while we all love our children dearly, do we want to be a burden on them during retirement? We get one chance at saving for the retirement we want so, when the times comes, we’d better be ready.
3. If I pay off my credit cards, it will improve my credit rating.
Most likely, paying off all your credit cards won’t do a thing to boost your credit rating. In reality, it may even do more harm than good. Creditors like to lend money to individuals who have a proven history of using credit and handling it responsibly. So getting rid of all of your credit cards also takes away your ability to show you can use credit responsibly. In addition, one factor that affects your credit score is your utilization rate. Your utilization rate is calculated by dividing the total of the balances of all of your credit cards by the total of the credit limits on all of your credit cards. For example, if you have two credit cards, one with a credit limit of $10,000 and a balance of $5,000, and the other with a credit limit of $15,000 and no balance, you’d have a utilization rate of 20%. But if you closed the card that you weren’t using, suddenly your utilization rate would increase to 50%. An increase in your utilization rate, especially one so drastic and sudden, could cause a decrease in your credit score.
4. All my money in the bank is safe.
Maybe it is; but maybe it isn’t. The Federal Deposit Insurance Corporation (FDIC) provides at least $250,000 of coverage per depositor. But keep in mind that is only on deposit accounts, and only on certain deposits. In addition, there are limits to the coverage. Many banks also broker products from their investment divisions (i.e. stocks, bonds, mutual funds, and annuities) which are never FDIC insured. So just because you have money “in the bank” doesn’t mean it’s safe. The best way to determine if your money is fully insured is to visit the FDIC website. In addition, you can enter your personal information in the FDIC’s Electronic Deposit Insurance Estimator (available in English and Spanish) to determine exactly how much of your deposits are insured.
5. Financial planning is only for the wealthy.
As a financial planner myself, I can tell you with great sincerity that this could not be further from the truth. It is arguably the average middle-class individual who works hardest for what he or she makes, and usually doesn’t have a lot left over. Certainly, there is little to no time to waste, and no room for mistakes. Therefore, it’s of the utmost importance that all of his or her financial strategies are appropriately suited for achieving his or her goals on the first attempt. We are bombarded with financial planning and investment information from multiple sources every day and most people think they are doing everything they can for themselves. But the truth is, we don’t know what we don’t know. Utilizing the skills and experience of an objective financial planner can keep anyone from making costly mistakes and wasting valuable time.