When it comes to planning for your financial future, particularly your retirement, holding the wrong information is more dangerous than holding no information at all. The assumptions you might be making about your finances or your retirement can do an incredible amount of damage if they’re incorrect.
Let’s take a look at some of the most common misconceptions about finances so that we can bust through incorrect ideas that you might be holding onto.
Myth #1: Insurance is meant to pay 100 percent of every expense.
Some people believe that insurance is supposed to cover every cost, no matter how small. Some people think that homeowner’s insurance, for example, is supposed to pay for every little repair on a home.
Because people hold this assumption, they fail to save money for those expenses.
In reality, insurance is meant to cover specific big-ticket costs or worst-case scenarios, but there is a strong likelihood that you’ll still have to pay out of pocket for a decent portion of your home, health and auto costs.
Set aside savings that are specifically for covering these bills when they come up. You should be able to easily take care of paying for a roof replacement, a prescription, damage to your car, or any other associated expense. Insurance is the last resort, not the first.
Myth #2: You don’t need to start planning for retirement until you’re older.
Unfortunately, many people believe that retirement isn’t something that they need to start thinking about until they reach their 40s or 50s. That’s absolutely not the case.
The younger you are when you start preparing for retirement, the better. The longer that your investments have a chance to grow and compound within the market, the stronger a position you’ll carry for retirement goals.
No matter how old you are, start planning for your retirement now. After all, you will never be younger than you are today. You would be surprised at how much your savings can multiply over the years once they have a chance to grow and compound over the years. Saving an additional 1% or 2% now can translate into breathing a huge sigh of relief when you’re in your golden years.
Myth #3: Bank savings is good enough.
Some people believe having a strong savings account, or a healthy emergency fund, is good enough. As long as you have savings, they believe, you’re in a good financial position.
Unfortunately this is not the case. In addition to having strong savings, you also should have good insurance coverage, a good retirement plan and a reasonable number of investments. You should also make sure that you protect yourself against any possible threat or losses to the finances that you’ve worked so hard to build.
Focus both on growing your wealth in a reasonable and risk-conscious manner, as well as protecting your wealth from a legal or market threat. Good financial management is still much more than simply accumulating savings into a bank account.
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