Wednesday, March 11, 2009


There is an awful lot of bad advice out there when it comes to managing your personal finances. Like rumors, these myths get told and retold as if they were true and spread like wildfire even though they are flat out wrong.

Money Myth No. 1: This is a Great Opportunity to Buy Stocks

If you believe that, I have some real estate in Florida (with just a little water on it) that's also a great buy. If your financial advisor is telling you that now is the time to buy, fire your broker. Are you kidding me?!

We know that you are desperate to make back some of your investment losses, but buying stocks in this environment isn't the way to do it. The bottom is nowhere in sight right now, and this is no time to invest new money -- don't let anyone tell you otherwise.

Money Myth No. 2: Everyone Needs Life Insurance

Think the insurance agents are behind keeping this money myth alive? Here it is in a nutshell: If you have someone who really DEPENDS on your income -- then, yes, you likely may need life insurance to help them maintain their standard of living if you're gone.

If you're single, retired or part of a dual income household with no dependents, you may not need life insurance at all. And, please, don't count on life insurance as a savings plan or as a source of "emergency money" that you can cash in down the road.

Money Myth No. 3: Credit Counseling Will Hurt Your Credit Score

No, no, NO! We're going to scream this one from the rooftops till we get through! Credit counseling will not affect your credit score one iota.

In fact, Fair Isaac (the company that calculates credit scores) does not factor enrollment with a credit counseling service into their scoring criteria. However, some lenders will see that "in credit counseling" notation on your credit report as a red flag, so you may have trouble getting new credit while you are in counseling.

Money Myth No. 4: Money Markets are FDIC Insured

A money market mutual fund is most certainly NOT FDIC insured. However, a money market DEPOSIT account -- which earns interest at a rate set (and paid) by the bank -- IS FDIC insured.

The fact that the names of these two vehicles sound similar may be the source of the confusion. Just suffice it to say that, basically, any deposit-type of account where your bank pays you interest is probably insured (but double check!) That includes any traditional type of bank account -- from checking and savings to CDs and IRAs. All of these are insured by the FDIC up to the limit of $250,000 per qualifying account.

Money Myth No. 5: You Get What You Pay For

Despite overwhelming evidence to the contrary, this money myth won't die.

While it's true that sometimes there IS a link between price and quality, more often than not, you can get a great product at a great price if you shop around and/or know what to look for.

Take generic drugs, for example. They often use the exact same ingredients as their higher-priced name brand counterparts, and many are considered to be just as effective when stacked up against the big names. So why pay more?

Money Myth No. 6: Co-Signing a Loan is No Big Deal

Think co-signing a loan for a friend or relative is "not a big deal"? Think again.

Your signature is essentially telling the lender, "Sure, come after ME if my loved one defaults ... or even misses ONE payment. I'll take care of it!"

And, yes, this even applies to your own children. We know of one couple who co-signed a loan for their grown son -- one day, he just stopped making payments. Guess who's now making those car payments for him ... to avoid ruining their own credit?

Money Myth No. 7: You Don't Need a Will if You're Leaving Everything to Your Spouse

More than half of Americans die without leaving one. Big mistake.

Don't make the all-too-common assumption that your spouse will automatically get everything -- the house, the car, your investments -- upon your death. Without a will, there's no guarantee. That goes especially if you have children and/or surviving parents. The law in most states will award one-third to one-half of your property to your surviving spouse and divvy up the rest between your children and your parents, if they're still living.

Money Myth No. 8: Your Debts Will Be Wiped Out When You Die

It's a sad fact: Your debts may live on long after you do. Sure, some of your creditors may choose to forgive your debts, but more often than not, they'll try and collect from your estate.

If you have a trustee, that person is legally obligated to contact and pay off any debts before distributing money or property to your heirs. But, even if you don't have a trustee, your creditors can still stake a claim against your estate.

Money Myth No. 9: You Need a Certain Amount of Money to Start Investing

Don't let this money myth rob you from investing in your future. Even if you can only invest a few dollars every month, you still have plenty of options.

As a first step, you can open an online savings account that pays interest. Or you can buy stock directly from a company, though a Direct Stock Purchase plan. You can also pick up a low-cost mutual fund for as little as $50.

Money Myth No. 10: The Lower Your Insurance Deductible, the Better

This one is completely backwards! The lower your deductible, the higher your premium.

For MOST people, the odds of an accident or a house fire or a serious illness are actually quite small. So a higher deductible (in exchange for a lower monthly premium) should benefit more people than not.