They have the slight ring of truth, with just enough "truth" to make their unexpected twists or alarming implications seem real. So they're shared with friends and family, across the Web and on social media by people who believe them. We're talking urban myths, and the realm of personal finance certainly has its share.
Here at Kiplinger, our mission is to debunk such hokum, so you can prosper by following tried-and-true principles of effective wealth creation and asset management. These eight urban legends of personal finance have gained false currency over the years. Learn what you should really believe while we unmask the bogeymen.
Myth: You Don't Have to Start Saving for Retirement Until You're 40
One in four Americans ages 30 to 49 are saving NOTHING for retirement, and more than half -- 59%! -- say they plan to save more aggressively "later" to make up ground. Oh dear. The long-term fallout can be devastating if you fail to stash money in a retirement savings plan as soon as you start earning a paycheck.
Say you're 25 years old and you put
But if you wait until you're 35, invest
Truth: The sooner you start saving and investing, whether it's for a house, college or retirement, the better.
Myth: Only Rich People Get Tax Breaks
Ah, so this is why
Truth: The tax code offers a slew of tax savings for middle- and working-class taxpayers, intended as incentives for starting a family, educating yourself and your children, buying a home and saving for retirement. You don't have to be a billionaire like Trump or a millionaire like
Myth: Gold Is the Best Investment You Can Make
Always a popular place to hoard money in times of panic, the precious metal was the most popular investment choice of Americans after the 2008-2009 Great Recession. It still ranks number three after real estate and stocks, according to Gallup, ahead of CDs, savings accounts and bonds. But gold has issues: its value historically stays flat for long periods of time, never yielding dividends. And it is prone to sudden price increases during hard times followed by sharp drops when a crisis passes. Now trading in the
Truth: All that glitters isn't gold. A diversified portfolio will shine much brighter over the long term. If the shiny stuff comforts you from fears of another market meltdown or economic disaster, invest in a gold ETF or gold mining stock that yields dividends. Gold itself makes for "a nice anniversary present. It is not an investment," says portfolio manager
Myth: Social Security Won't Be Around When You Retire
More than half of all adults in the U.S. (55%) fear this. Yet, 72% say they'll need that money when they retire, according to a 2015
Farrell laments it's become commonplace to proclaim that
Truth:
Just be sure you keep
Myth: Trade Deals Are Bad For American Workers
Almost two-thirds (62%) of Americans now believe trade restrictions are necessary to protect American industries and jobs, according to a recent Bloomberg Politics poll. The notion that trade is destroying American jobs and driving down American wages has become an article of faith in the campaigns of
Truth: Trade and international commerce creates as many if not more jobs as it destroys, especially in the service industries. True, trade causes worker dislocations and can hit wage manufacturing jobs hardest But the jobs created are often higher-paying. What's more, trade competition creates a greater variety of high-quality goods and services for U.S. consumers. Given the increasingly important role of trade in the U.S. economy--imports and exports now account for 30% of GDP--efforts to wall off U.S. sectors and industries would be a drag on economic growth. And since the U.S. is the largest economy in the world, a surge in protectionism could threaten a worldwide slowdown. Shame on the presidential candidates.
Myth: You Should Borrow From Your 401(k) When You Need Money
You're paying yourself back with interest, so there's no loss, right? More than 20% of 401(k) plan participants who are eligible to take loans against their retirement savings had outstanding balances at the end of 2012, according to data from the
But the option has a huge flaw: You are borrowing before-tax dollars set aside in your 401(k) -- and paying the loan back with after-tax money. That money will get taxed again when you withdraw from your savings after you retire. You end up paying taxes twice on your money.
And it gets worse. If you quit your job or are laid off or fired, you will need to pay the loan back, typically within 60 days -- at a time when you may least be able to afford to pay it back. If you can't pay it back, the outstanding balance will be considered a taxable distribution and, if you are under 55, you will get hit with an additional 10% early-withdrawal penalty.
Truth: Yes, you can borrow from your 401(k) to make a down payment on a home, pay for college, or in cases of financial hardship. But the hit to your nest egg may be greater -- and last longer -- than you think. Consider four reasons why it's a bad idea to borrow from your 401(k).
Myth: Credit Cards Are Bad News and Best to Be Avoided
There are legitimate reasons to be cautious with plastic: It's easy to rack up a big balance quickly, and you'll owe interest if you don't pay off the full balance each billing cycle. Let's say you charge
But people who eschew credit cards entirely limit their spending flexibility, forgo valuable rewards and fail to improve their credit via responsible spending.
Truth: If you're smart about when and how you use it, a credit card will help you build a solid credit history and boost your credit score. That will help you get a lower rate when you apply for a mortgage or other loan. The best strategy is to always pay off your balance within 30 days. If you're new to credit, discover how to get your first credit card -- and use it wisely.
Myth: Only Rich People Need a Will
As with Prince,
Truth: Everybody should have a will, even if only to spell out funeral and burial wishes. You can write your own will for
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Douglas Harbrecht is New Media Director at Kiplinger.