There are some widely held
beliefs about debt, money management, and other personal finance topics
that aren't etched in stone as we've been lead to believe.
Could it be that these
pseudo truisms have, in fact, been nothing but fiction all along? The
financial stakes are way too high to be taking these bogus notions as
fact.
Let's take a look at four
of the more common beliefs. The truth may surprise you.
Fiction: Bankruptcy is
the easiest way to just start over from debt problems.
Fact: Nothing could be further from the truth. For anyone facing the
prospect of bankruptcy or already in the process, life can be a living
nightmare. Bankruptcy can devastate your career, destroy your marriage,
and hurt your health and well-being. Bankruptcy is a life-altering
event that has long-lasting effects. Few people who have been through
the bankruptcy process would say they came out of the experience
unscathed. The bottom line is that bankruptcy is painful, humiliating,
and a huge disruption to almost anyone's life. Your best option is to
consult with a CERTIFIED FINANCIAL PLANNER professional to discuss other
possible solutions to get out of debt.
Fiction: Leasing is a
good strategy to acquire a vehicle.
Fact: A survey of top financial professionals and a calculator would
tell you that leasing can end up being the most expensive way to acquire
a vehicle. Today, most new car transactions are completed by way of a
lease. Leasing is simply a "rent-to-own" strategy. If you do the math
and factor in the high capital cost, down payment, fees for acquisition,
disposition, excess wear and tear, and excess mileage, plus other
charges not mentioned, you'd be shocked at what it can ultimately cost.
Break free from the chains of leasing. Find a way to save $300 a month
for two years. Then, at lease end, go and buy a used car for cash.
Downgrading from a newer to an older vehicle may hurt the ego for
awhile, but that's a small price to pay to travel the road to financial
freedom. Continue to save $300 a month for another two years. Then
sell and upgrade to a newer vehicle for cash. A key factor in building
wealth is not having a vehicle payment.
Fiction: Counting on a
large income tax refund each year makes financial sense.
Fact: No, it doesn't. It's good that you have your income tax
liability covered each year but you're letting state and federal
government entities use and invest your hard-earned money for free. A
better strategy is to plan for less of a refund. Then, take those extra
paycheck dollars and put them to work for you rather than the
government. Contribute to an employer-sponsored retirement plan or set
up an Individual Retirement Account (IRA) annually. Both of these
accounts grow tax-deferred. Also, if you haven't established an initial
emergency fund of $1,000, now is the time to do so. Having a reserve
available for unexpected events such as car or home repairs will provide
peace of mind.
Fiction: An adjustable
rate mortgage (ARM) makes it easy to buy a home
Fact: Maybe for the first year or so. But then the financial squeeze
begins. Make sure you brace yourself when you get the notice of an
upward "adjustment" to your mortgage payment. The loan that made it
possible for you to move in may now be forcing you to move out. It's
not unusual to see a dramatic increase in an ARM's monthly payment.
Adjustable rate mortgages are one of the major reasons for record
foreclosures and bankruptcies today. A fixed rate mortgage where
principal and interest payments remain the same over the loan term, is a
much better strategy.
