| Unfortunately, one of the factors that will prevent | | | | 5. Carrying a balance on my credit card will improve |
| many people from becoming financially successful is | | | | my credit rating. |
| their own false beliefs about money and their | | | | Carrying a balance and paying it off slowly does not |
| personal finances. Take a look at my top 10 money | | | | prove your credit worthiness. All this will do is take |
| myths, and hopefully you can avoid the | | | | money out of your pocket and give it to a credit |
| consequences of believing in them. | | | | card company in the form of interest payments. |
| 1. If I get a raise that bumps me into a higher tax | | | | If you want to use a credit card as a tool to |
| bracket, I'll actually take home less money. | | | | improve your credit score, all you really need to do is |
| Buzz - WRONG! Moving into a higher tax bracket only | | | | pay off your balance in full and on time every month. |
| increases the rate of tax paid on the last dollars you | | | | If you want to take it a step further, do not charge |
| earn. For example, let's say you're filing single, your | | | | more than a small percentage of your card's limit |
| old salary was $40,000 a year and your new salary is | | | | because the amount of available credit you have |
| $43,000 a year. According to the Canada Revenue | | | | used is another factor involved in the calculation of |
| Agency's 2010 federal tax rate schedules, when your | | | | your credit score. |
| salary was $40,000, your federal marginal tax rate | | | | 6. Home ownership is always the best way to invest |
| was 15% and now with a salary of $43,000, your | | | | your money. |
| marginal tax rate is now 22%. | | | | Just like all other investments, home ownership |
| The key to unlocking this personal finance myth is | | | | involves the risk that your investment may decrease |
| the definition of the word "marginal." In this situation, | | | | in value. While commonly cited stats say that housing |
| your first $40,970 of income is still taxed the same | | | | appreciates at somewhere between the rate of |
| way it was before you got your raise. With a | | | | inflation and 5% per year, if not more, not all housing |
| $40,000 income, your take-home pay was $34,000 | | | | will appreciate at this rate. Owning a home is a major |
| ($40,000 less 15% in federal tax). If you make | | | | responsibility and there are easier ways to invest |
| $43,000, you will take home after federal tax a total | | | | your money, so don't buy a home unless you are |
| of $36,407.90. This is because it is only the extra | | | | attracted to its other benefits. |
| $2,030 above $40,970 which is taxed at the 22% - | | | | Another factor is the psychological element - I once |
| not the whole $43,000. | | | | heard a partner of a large accounting firm say that |
| 2. Renting is like throwing away money. | | | | he credits much of his wealth to the fact that his |
| Do you consider the money you spend on food to | | | | mortgage payment is "forced savings." So, that's |
| be thrown away? Or, how about the money you | | | | true.. if you don't think you have the discipline to |
| spend on gas? Both of these expenses are for items | | | | invest the money you save from not having a |
| you purchase regularly that get consumed and on the | | | | mortgage... you're probably not going to be better |
| surface they appear to have no lasting value, but | | | | off financially. |
| they are ultimately necessary to carry about daily | | | | 7. "I'll save more later when I make much more |
| activities (unless you can walk or take the transit | | | | money." |
| everywhere). Rent money falls into the same | | | | That's just another excuse for not saving, in fact, |
| category. | | | | that's a really lame excuse. Claiming that a higher |
| Even if you own a home, you still have to "throw | | | | income will be your source to good financial habits, is |
| away" money on expenses like property taxes and | | | | simply lame. You can need to take control of your |
| mortgage interest (and likely more than you were | | | | own finances, now... not later. |
| throwing away in rent). In fact, for the first five | | | | 8. The stock market is tanking, so I should sell my |
| years, you are basically paying all interest on your | | | | investments and get out npw before things get any |
| mortgage. For example, on a 25-year, $300,000 | | | | worse. |
| mortgage at 5% interest, your first 60 payments | | | | When the stock market goes down, you should |
| would total about $105,000. Of that you "throw | | | | really keep your money in the market. This way, you |
| away" about $71,000 on interest payments and you | | | | can ride out the dip and eventually sell at a profit. In |
| only put $34,000 into equity of your home. | | | | fact, stock market lows are a great time to invest |
| 3. You always get what you pay for. | | | | even more. Many seasoned investors consider a |
| Higher-priced items are not always higher quality. | | | | decline in the market to be a "sale" and take |
| While there is sometimes a correlation between price | | | | advantage of the opportunity to pick up some |
| and quality, it is not necessarily a exact correlation. A | | | | valuable investments that are only experiencing a |
| $2 chocolate bar may be tastier than a $1 bar, but a | | | | temporary dip. You might want to do some reading |
| $10 bar may not taste significantly different from a | | | | on Benjamin Graham or Warren Buffet - who are |
| $2 bar. When determining an item's true value, look | | | | both proponents of this method. A common |
| past its price tag and examine the true indicators of | | | | expression out of Buffet's mouth is "Be fearful when |
| value. Does that generic Tylenol stop your headache? | | | | others are greedy and greedy when others are |
| Is that home well-maintained and located in a good | | | | fearful". |
| neighborhood? When doing a proper analysis, you'll | | | | 9. Timing the market is easy |
| know when paying the higher price is worth it or | | | | You always hear successful stories of those who |
| alternatively, when it isn't (and you'll be on your way | | | | have timed the market and have made fortunes. We |
| to understanding the principles of value investing). | | | | rarely hear of the thousands who time the market |
| 4. I don't have enough money to start investing. | | | | but lose fortunes. Studies and reports show that |
| It's true that some brokerage firms require you to | | | | marketing timing does not work for 95% of us, |
| have a minimum amount of money to invest in | | | | unless you have money to burn, don't try to time |
| certain mutual funds or even to open an account. | | | | the markets. |
| The truth is, it is easy to start investing with very | | | | 10. I'm young - I don't need to worry about saving |
| little money thanks to online savings accounts. While | | | | for retirement yet... or, I'm old - it's too late for me |
| traditional bank savings accounts generally offer | | | | to start saving for retirement. |
| interest rates so low that you would barely notice | | | | The younger you are, the more years of compound |
| the interest you accrue, an online savings account will | | | | interest you have ahead of you. Compound interest |
| offer a more competitive rate based on how the | | | | is like free money, so why not take advantage of it? |
| market is currently doing. As of April 2010, it is | | | | Someone who starts saving and earning interest |
| common to find online banks offering 1-2% interest. | | | | when they are young won't need to deposit as much |
| With recent news that interest rates in Canada will | | | | money to end up with the same amount as |
| be going up, we could be in the 3% range within a | | | | someone who starts saving later in life, all else being |
| year or so. A 3% return is a pretty good return on | | | | equal. |
| your low-risk savings account investment when you | | | | On the flip side, you shouldn't worry if you're older |
| consider that stocks historically return an average of | | | | and you haven't started saving yet. Of course, your |
| 7-10% annually. Also, some online savings accounts | | | | $100,000 nest egg may not grow to as much as a |
| can be opened with as little as $1. Once you're in a | | | | 20-year-old's by the time you need to use it, but just |
| position to start investing in stocks and mutual funds, | | | | because you may not be able to turn it into $1 million |
| you can transfer cash out of your online savings | | | | doesn't mean you shouldn't try at all. Every extra |
| account and into your new brokerage account. | | | | dollar you invest will get you closer to your goals. |
| Alternately, you could open a brokerage account with | | | | Even if you're near retirement age, you won't need |
| minimal funds through one of the online trading | | | | your entire nest egg the moment you hit 65. You |
| companies that have cropped up. However, this may | | | | can still put money away now and make a |
| not be the best way to start investing because of | | | | considerable sum by the time you need it at 70, 80 |
| the fees you'll pay each time you purchase or | | | | or 90. |
| redeem shares (generally $10 - $30 per trade). | | | | |