20 Money Myths We’re Busting for 2020
Let’s face it, money talk has changed. Sure your parents and grandparents were able to buy a house with pocket change, pay it off in less than a decade, still have money left over to put into savings, go on vacation and save a million dollars for retirement. That financial trajectory has led to numerous money myths, but in an era of sky-high housing costs, ridiculous student debt and wage stagnation, do those myths still hold up or should we consign them to history?
You need to save $1 million for retirement
No“We get asked this all the time,” says Liz Schieck, a certified financial planner with the New School of Finance. “The answer is, it depends on your lifestyle.” Schieck says if your home is paid off and you live a quiet life, you won’t need to save a million dollars. “Totally, totally personalized. One person's feelings of extreme deprivation is another person’s comfort level.”
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Real estate is the only pathway to wealth
Not any more“I would rather people rent for ever and ever and ever, be able to save for retirement and to live their lives than to see them put all their money into a house, be house poor, have no other retirement savings and be crossing their fingers that their house is going to go up in value enough that they'll be okay in the long term,” says Schieck. She says that while it was a good strategy in the past, if it's going to take every dime from you, then it's probably not a great financial decision.
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Buying a home is a great investment
Not alwaysIf you live in a hot real estate market, buying a home may feel like a good investment but that’s not always the case. Schieck says there’s no way to predict whether the housing boom is going to continue. Plus, even if you sell your house, the market is so hot right now all you’ll do is spend it all on another house which might leave you with a bigger mortgage.
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You should have 3-6 months of salary in your emergency fund
It dependsAn emergency fund is always a good idea, says Schieck. But how much you should have in it depends on your employment situation. If you’re an employee and you’re eligible for employment insurance (EI), you take your household spending for three to six months, and deduct how much you would get from EI. That’s the amount you should save.
If you’re self employed, definitely save three to six months.
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You need a lot of money to start a small business
Not at allIn fact, it's becoming cheaper and cheaper to start a small business, says Mohammed Asaduallah, founder of Better with Benji. “The 'trap' that I see most entrepreneurs fall into is they try to get everything perfect right from the start. Someone starting a coffee shop thinks they need to look and feel just like a Starbucks to get customers when that's completely not the case.”
Asaduallah says you can start an online store today for less than $50 and don't even need to carry an inventory. You don't even need a web developer to build you a site any more. Sites like Shopify, Squarespace and Gumroad makes it really easy (and cheap!) for you to start and grow your business.
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You need to be good at math/commerce to run a successful business.
NoIt's not so much about being good at math/commerce to run a successful business, but more so about understand the ins-and-outs of your business to ensure it's sustainable, says Asaduallah.
He explains that if you buy games for $20 and sell for $100, most people would say they’re making $80 in profit. The successful entrepreneur would consider the costs of acquiring customers, marketing and costs.
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You need a lot of money to invest
NopeCompound interest is an awesome process and all you need is a small amount and time. You don’t need thousands of dollars to invest. Fees vary when investing in the stock market so look at online brokerages which tend to be cheaper.
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You have to give up coffee to be rich
Nope, buy the coffeeCutting your coffee habit isn’t going to make you rich. Instead, focus on the bigger things like your investment strategies, paying down debt and taking advantage of compound interest. If buying the coffee puts you in a good mood to tackle bigger financial challenges, buy the coffee.
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You’re bad at managing money
No, you just haven’t found the right approach yetIf you think you’re bad at managing money, you’re already in a negative mindset and that creates a spiral and there you are convinced you’re bad at money. There are so many tools, books and apps that can help you manage money that you’re bound to find one you like. And remember, money is a tool and you’re only using it.
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All debt is bad
No, but paying it off is always goodSchieck says that people tend to think of debt as good or bad debt, but she suggests reframing how we think about debt. “Sometimes it's helpful to think about anything that's increasing your net worth [for example, ongoing education] as meaningful savings.So knowing all debt isn't always bad, but it's still a great goal to pay it off.” It’s a good idea to prioritize that and then free up your money, which can then be added to your savings.
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One gender is better than the other at investing
NoWe are not fans of cliches. While studies do show that the different genders have different approaches to investing, it doesn’t take into consideration that women have only started investing in the last century. According to Investopedia, as more genders get involved in investing, attitudes to investing are expected to change.
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You should be contributing to your RRSP first
NoSchieck says that dominant advice still skews towards maximizing your RRSP, but it may not be the best account for everyone. When it comes to investments, including retirement, it’s not the most flexible, especially if you have that rare thing called a pension that might keep you in the exact same tax bracket.
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TFSAs aren’t great for retirement
Wrong“The TFSA gets no love and I can't figure out why,” says Schieck. “It is amazing and it's much more flexible than the RRSP. You can still use the TFSA as a retirement account but what you need to look at is your personal savings goals. What am I saving for? Is it just retirement or is it retirement and a cottage or education?” The TFSA lets you save for retirement (hey, compound interest) and still work towards other goals between now and then.
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I’m too young to save for retirement
NoWhen you’re young, it’s tempting to postpone saving for retirement in favour of paying off loans or saving for a home. Remember we talked about compound interest? Even the smallest amount will grow and the earlier you start, the more time you have to save for retirement.
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Carrying a small balance on your credit card will help increase my credit score
Definitely notWe’re not sure where this one came from but no, your credit score won’t improve. Instead you’ll end up paying interest charges and considering credit card interest starts at 19.99%, that adds up quickly. Paying off your card each month is a better way to improve your credit score.
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Checking your credit score too often can hurt it
NoGo ahead and check your score as often as you want, it won’t damage it. In fact, checking your credit history can help you understand how you manage your money.
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Financial planning is all about retirement
NoMaybe it’s the imagery of older couples used whenever the term is mentioned but financial planning is for everything: buying a home, paying off loans, saving for a car, saving for travel, starting a new business, having kids or even a yearly gut check to keep you on the right track.
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You don’t need insurance if you’re young
Not alwaysIn fact, life, critical or disability insurance is cheaper when you’re young so you can get a really good rate. Plus if you’re working, starting a business or planning on having kids, it’s good to have insurance in place.
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Only the poor and uneducated are in debt