April Fool’s Day is known for for its fun, (mostly) harmless tradition of trickery. It can certainly be entertaining to find out how gullible your friends and family are, but if you’re the gullible one, it might not seem as fun. Falling for pranks and false information on April Fool’s Day is understandable considering the deliberate efforts taken to pull the wool over your eyes, but as the old saying goes: “fool me once, shame on you; fool me twice, shame on me.”
In the same way, falling for bad advice or making a foolish financial decision once in a while is bound to happen, What’s important is whether you learn from it, or do you keep falling for the same ‘tricks’ over and over again. It’s not only what you do with your money that can be foolish — what you don’t do can either paint you the fool or put your on the path to financial success too. Be aware of these four financial myths, and you’ll be a little wiser the next time they come around.
#1:Your Credit Limit is Your Budget
April Fool’s! Contrary to a popular myth, a credit limit is not a budget. Even if you’re financially responsible — scrimping all you can but still forced to rely on credit cards to get you through — not being able to live within your means is the sign you need to perform a serious financial overhaul. Consider how to increase your income, whether pursuing a new job, taking on another, selling stuff — whatever it takes. Never max out your credit limit. Using a credit card in an emergency isn’t recommended, but if you’ve already maxed out, it won’t even be an option.
#2: You Don’t Need an Emergency Fund — Things Will Work Out.
April Fool’s! There are easily dozens of reasons you should have an emergency fund: the sudden loss of a job or need to relocate, a medical emergency, a major vehicle repair — the list goes on. Not having a fund for these unexpected money-drainers can mean debt, bad credit or even bankruptcy.
Many people have good intentions of starting an emergency fund but never get around to it. Unfortunately, life’s circumstances don’t care about good intentions. If the budget’s tight, set aside a little each paycheck (say, 10%) until you’ve accumulated enough to cover 6 to 9 months of living expenses. Keep these funds accessible (not too tied up in investments), but not so accessible it will be easy to use them for other things. When you use some of it, replenish the amount as soon as possible.
#3: You Don’t Need Insurance — You’re Healthy
April Fool’s! The Obamacare penalty has forced everyone to have health insurance in the United States, but there are more important reasons to have coverage. Even if you’re healthy, unexpected medical emergencies or conditions can leave you looking foolish. Enroll in at least a low-cost, high-deductible plan, and don’t forget about other types of insurance, as well — term life insurance, long-term disability, and even renter’s insurance don’t cost much and can save your skin if something goes wrong.
#4: You Don’t Need a Retirement Plan —The Present is More Important.
April Fool’s! The present will become the future sooner than you realize. The earlier you invest in retirement savings, the more time your nest-egg will have to grow with minimal extra effort. Secondly, avoid cashing out your retirement savings at all costs. Not only will you be taxed heavily for early withdrawal, you’ll be that much further behind on preparing for your future. Always pay yourself first, and like your emergency fund, consider it off-limits until you need it (when you retire).
There are many more financial myths people fall for, but these are some of the sneakiest. Don’t be the April fool this month or the rest of the year — practice wise financial stewardship that makes the most of the present and doesn’t neglect to plan for the future.
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