October is Financial Planning Month, so it's as good a time as any to start thinking about your financial future. However, when you start really digging deep, you might find lots of information and advice. How do you know who to trust? Who is the most reliable?
Bill Anderson and the Cash Money Crew examines some of these so called "Rules of Thumb" for financial planning and determine what advice is actually useful.
Here are some "Rules of Thumb" which may need to be given a second look:
- Financial Planning is only for the wealthy.
- Financial Planning only involves investments.
- Financial Planning is done only once or occasionally.
- Your emergency cash fund should have 3-6 months of living expenses.
- You should save 10% of our income.
- You should buy rather than rent a home.
- Your mortgage should not be more than two times your family income.
- Never use an adjustable mortgage.
- You should refinance your mortgage when interest rates are 2% lower than what you are paying.
- You should pay off your mortgage before you retire.
- Annuities are never a good investment choice.
- Medicare will cover most of your medical costs.
- Medicare will pay for long term care needs.
- Subtract your age from 100 to get the % to invest in equities/stocks for your portfolio. Bonds are best for retires.
- The best percentage to annually withdraw from your assets at retirement is 4%.
- Target date funds in your retirement plan are “Set it and forget it”.
- I will need 80% of my pre-retirement income for my retirement.
- Save for retirement before saving for college education expenses
- The amount of life insurance you should buy is 7 times your income.
- Never buy cash value life insurance. Or, never buy term insurance.
- My tax rate will be lower when I retire.
- Always close credit card accounts with zero balances.
- When purchasing a car, buy used, or buy new and drive it ten years.
- Gold is a no risk investment.
- You can’t lose money investing in real estate.
- Stocks always outperform other asset classes over the long term.
- High dividend paying stocks are safe investments.
- Alex Petrovic, Owner of Petrovic Services
- Dan Mathews, Certified Financial Planner at Stepp and Rothwell
- Marc Shaffer, President of The Financial Planning Association of Greater Kansas City