Are Money Myths Costing You Cash?
March 30, 2007
Do you know financial fact from fiction? The Financial Planning Association (FPA) has published a financial myths quiz in honor of April Fools day. Test your money skills with the questions below. Answer fact or myth about credit scores, taxes, insurance, debt, credit cards, and home values. The answers are at the bottom of the page.
1) You have only one credit score, so you only have to check with one of the three major credit bureaus to find out what that number is.
2) I’m getting an extension on my 2006 tax return, so I can delay my 2006 IRA contribution too.
3) I don’t have to buy long-term care insurance because Medicare will pick up the tab.
4) A 25-year-old person who contributes $200 a month to an IRA earning 8 percent annually until age 70 ½ could end up with as much as $1 million for retirement from that investment alone.
5) I don’t need a lawyer to produce a valid will.
6) I can write off all expenses on my home.
7) Disability insurance is a critical part of a financial plan.
The average American college student graduates with $8,500 in debt.
9) Cash-back credit cards will put more money in my pocket
10) My credit score can actually affect my insurance rates.
11) You’ll get every dime out of a home remodeling project when it’s time to sell.
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1) MYTH: You have three credit scores, and they can vary widely. That’s why it’s important if you’re applying for a loan to check with that prospective lender to see which agency’s score they use before you apply.
2) MYTH: Delaying your contribution past April 17 means it won’t apply to your 2006 return. It’ll give you a jump on your 2007 contribution, though.
3) MYTH: Under certain limited conditions, Medicare will pay some nursing home costs for Medicare beneficiaries who require skilled nursing or rehabilitation services. But long-term stays in a nursing home? That comes out of your pocket to the tune of a current average of $60,000-$75,000 a year. That’s why you need to plan for long-term care either with your own assets or through the purchase of long-term care insurance.
4) FACT: Dedicated, regular retirement savings as early as possible can produce the best results for a well-funded retirement.
5) FACT: In some states, you may be able to write a will yourself or use home computer software to do so, with one key requirement – you’ll need two or more witnesses to sign the will at the same time to make it valid. However, if you have significant assets or a need to divide your estate among many people, it’s really wise to consult an estate attorney.
6) MYTH: Home additions, insurance costs, renovations, condo fees; don’t think every dime you spend on your home is deductible as are property taxes and mortgage interest. This is why it’s critical to work with a tax advisor or a financial planner when determining what home-related issues are deductible.
7) FACT: Long-term disability insurance is critical if you are self-employed – you need a source of replacement income if you’re unable to work. But it’s also important to have if you work for an employer – most companies provide only short-term disability coverage.
MYTH: Roughly two-thirds of American college graduates are leaving school with substantial debt to pay off – an average of $19,200, according the Project on Student Debt.
9) MYTH: Only if you pay off those balances every month. Rewards cards traditionally carry higher interest rates than other cards, so if you don’t pay your balance off in full, you’re better off with a low-interest credit card than you are with a cash-back or rewards card.
10) FACT: Increasingly, insurance companies are using credit scores as one predictor, not only of on-time payments, but also of an individual’s overall financial behavior that increases their level of risk. Financial institutions and employers are increasingly checking credit scores to decide which customers they plan to accept.
11) MYTH: Valuing home remodeling projects is tricky business, particularly in a slower real estate market. Home improvements can add to your property’s value, but the days of speedy renovations becoming big moneymakers are over. What really appreciates? The value of the land underneath the house. That doesn’t mean don’t renovate – do so for your own pleasure and for the basic maintenance of the home. Just don’t expect to hit the lottery doing it.
I wish I had $20K in debt, instead of the $70K I have. On the flip side, at least the interest is somewhat low!
Wow eROCK! Sorry to hear about the debt load. I agree, $20K does sound better than $70K. Was that all from undergraduate school?
[...] Money Smart Life asks Are Money Myths Costing You Cash? It separates myth from fact, a great list discussing credit scores, taxes, insurance, debt, credit cards, and home values. [...]
[...] Are Money Myths Costing You Cash? by Ben @ Money Smart Life. Ben lists 11 financial facts/myth. Most people who read this blog (or other personal finance blogs) will be able to quickly distinguish between the facts and the myths..but there must be a ton of other folks who wouldn’t know the difference. [...]
I think it’s best to secure the help a lawyer and an accountant when you look into things such as a will and your estate planning.
I hear all the time that people are saving money because they can do their own taxes, etc. This may be true. I can do my own taxes, but it’s the professional help for tax planning that’s beneficial. You’ll be able to know the consequences of major financial moves before you make them. That’s what I pay the accountant for.
-limeade
http://fiscalmusings.blogspot.com
[...] Fact and fiction in personal finance world. Ben at Money Smart Life asks “Are Money Myths Costing You Cash?” Here’s one of the questions that I like: Cashback credit cards will put more money in my pocket. Really? Take the entire quiz and find out the facts and myths. [...]