The great thing about investing and financial management these days is that there is so much information available to investors. This makes it easier for financially savvy individuals to make big strides financially, but it also opens up the potential for a very large amount of misinformation to be passed along as well.
The saying goes, you can’t believe everything you read, and this is especially true when it comes to information in the financial sector. Many individuals and organizations count on people trusting their advice, so that they can make a profit regardless of whether that advice pans out for the investor or not, which results in serious misconceptions regarding best financial practices. These misconceptions range from complex investment deals to simple money saving tactics. If you’re wondering what myths could possibly impact people who are simply trying to save, you’re not alone. There are many who aren’t aware, and fall victim to these common errors. Here are a few pieces of advice to steer clear of, or at least check out with your financial advisor before heeding:
Put all your money into a savings account: A U.S. News & World Report Article points out that “Interest is the primary reason for depositing cash into savings rather than a checking account or stowing it under the mattress. Every effort-free dollar earned via interest is a dollar you won’t have to earn the hard way: working.” To this point, it’s important to consider what the yield is when comparing the interest rates banks offer to other investment options. There may be some with significantly lower yields, which is compounded by the fact that savings accounts cause you to lose money over time because their low interest rates do not keep pace with inflation. Savings accounts also expose people to bank fees and other hidden costs, such as money withdrawal limits on savings and money market accounts.
Whatever you do, cut back on spending: Steve Siebold, author of How Rich People Think, points out that people actually make less progress accumulating wealth when they are focused solely on spending less. The bigger motivator to accumulating wealth is when people concentrate more of their energy on bringing in more money. “The real key is earning,” he says. No matter how much you save, you won’t acquire wealth unless you are making money, not just putting it away.
Follow in Your Parents Footsteps: Okay, so this is the one time your mom might be wrong. What worked for your parents in terms of saving money, might not necessarily work for you. The notion of saving money by investing in real estate and looking to traditional savings accounts to stockpile cash has changed significantly in the past decade. Many individuals, and even many investment firms, are slow to catch on to the changes in the marketplace, as discussed in our blog 60 Years the Same. This is a dangerous trend for individuals who fall prey to their outdated advice.
Pay with Cash: While it’s always important to avoid spending money you don’t have, believe it or not, using credit cards can open you up to potential savings opportunities you wouldn’t be able to take advantage of otherwise. Thanks to points and rewards, you are better of using your cards strategically each month to reap these benefits, as long as you can pay your balance off at the end of each term.
Saving isn’t necessary until later in life: Many young people starting out their careers fall into a pattern of living paycheck-to-paycheck, convincing themselves that they have their entire lives to save for retirement. While this may be true, it doesn’t account for the fact that the money you save—if invested properly—can compound at a much greater percentage the earlier you begin putting it away.
When it comes down to it, all these myths point to some very real shifts in the financial marketplace. The myth really lies in the idea that saving money will help you make money. It won’t. While it might prevent you from spending what you have, by comparison to other options it misses the mark on what your money can do for you when it’s not being spent. Standard savings accounts aren’t necessarily the best way to “store” your money, when it could have much greater returns living elsewhere.
A good financial advisor will not only keep you abreast of any misguided information, he or she will also be proactive about helping you realize when your money isn’t performing as well as it should. In most cases, keeping your money in a savings account or falling into one of the other misguided notions above can actually keep you from making money. One of our priorities at Goldstone Financial is helping our clients review the decisions they’ve made in the past with regard to their finances, as well as those they will make in the future. We are incredibly hands-on in the process of helping clients determine whether their sources of information are reliable, and good choices for their specific goals, at the given moment in time.