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Six Money Myths and Steps to Financial Success

Posted on: March 18, 2016



Just because a belief is common doesn’t mean it’s true!

 In over three decades as a financial advisor and five generations of family investment experience, I have come across many beliefs about money and financial planning that are just not true. These money myths often stand in people’s way, creating barriers to them building a better financial future.

 In this article, I’m going to shine some light on 6 common myths and offer practical steps you can follow to achieve financial success.

Myth #1: Money management is only for wealthy people. 

The truth is that everyone can benefit from basic financial strategies, such as budgeting, investment, and debt management.

Myth #2: I’m too young to worry about financial planning.  

 It’s never too early to pay attention to your finances. Even children can benefit from simple money management strategies.

 Myth #3: Financial planning is all about retirement.

 While planning for retirement is an important goal, there are others. Buying a house, starting your own business, sending a child to college or university, or making sure your family is provided for should you die or become disabled – these are all important for your family’s financial future.

 Myth #4: Life insurance coverage should equal five times your salary.

 Not necessarily. Your life insurance coverage should be based on your personal situation and your family’s financial needs.

 Myth #5: Everyone should save 10 percent of their salary for retirement.

Your retirement savings plan depends on your situation and goals. When you are young and getting an early start on your retirement savings, 10% may be sufficient. If you are older and are just starting to save for retirement, you may need to put away significantly more. But remember, any amount you save for retirement will help.

 Myth #6: I’ll only need 75 percent of my pre-retirement income during retirement.

 That’s a common guideline, but many people need more to be able to enjoy the retirement lifestyle they want. Don’t be caught underprepared by sticking to this formula.

 

Six Steps to Greater Financial Success

 Now that we’ve dispensed with some of the key money myths, let’s look at six simple and straightforward steps toward building a solid financial future. 

1. Set Clear Goals.

 Define exactly what you are saving for, such as a new home, post-secondary education for the kids, or your retirement. Having clear goals in mind and a time frame for reaching them can help you stay focused. 

2. Design a Spending Plan. 

Before you come up with a plan, track your actual income and expenses for a month or two. Use your cheque book or bank statement to fill in the blanks and pinpoint your annual and quarterly expenses. Next, you should sit down with a financial professional and design an ideal spending plan. Be sure to include money for savings in your plan. 

3. Track Your Net Worth. 

Your net worth – your assets minus your debts – is a snapshot of your finances at any given time. Your net worth constantly changes, so you and your financial advisor should do the calculations annually, or whenever there has been a major change in your financial situation. 

4. Create an Emergency Fund. 

An unexpected expense can throw a wrench into your finances if you’re not prepared. Keep at least three to six months’ worth of living expenses in an account that allows you to access the money quickly and without penalty.

5. Pay Down Debt. 

Paying off high-interest credit cards brings automatic savings, since you won’t be paying out all that money in interest. Take the amount you’d been paying the credit card company and put it into a savings or investment account.

6. Invest Strategically. 

Choose investments for your portfolio based on your goals, risk tolerance, and time frame. Make sure you review things at least once a year with your financial advisor and make any necessary changes.

 

If any of these money myths have been blocking your financial success, let’s chat about how we can get you back on track.

 Our door is always open!

 

 

 

 

 

BMO Nesbitt Burns Inc. ("BMO NBI") provides this commentary to clients for informational purposes only.  The information contained herein is based on sources that we believe to be reliable, but is not guaranteed by us, may be incomplete or may change without notice.  The comments included in this document are general in nature, and professional advice regarding an individual’s particular position should be obtained. ®"BMO (M-bar roundel symbol)" is a registered trade-mark of Bank of Montreal, used under license. ® "Nesbitt Burns" is a registered trade-mark of BMO Nesbitt Burns Inc.  BMO Nesbitt Burns Inc. is a wholly-owned subsidiary of Bank of Montreal. Member-Canadian Investor Protection Fund.


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