5 Financial Myths
by Steve Thomas
At SGL, we find that our clients, like most Americans, are trying to do their best with the money they have. They have various goals including: saving for or surviving retirement, dealing with home ownership (taxes, maintenance, downsizing, etc.), or paying down debt. Pitting those goals against the realities of jobs that don’t pay enough, inadequate retirement savings, rising health care costs, our predilection for wants vs. needs, etc., too many people fall prey to the old saying, “there’s more month left at the end of the money than money at the end of the month.”
We also find that many of our clients are deluged from all sides with an abundance of financial advice from various “experts” in the field, many of whom are more interested in headlines than the accuracy of the information they are providing.
There are numerous financial myths that we hear about from our clients. Some seem to exist to shame people, while others seem on the surface like good advice, but are actually outdated and no longer applicable. In fact, some of these myths have crossed over into the realm of superstition, like “don’t walk under a ladder for fear of bad luck” or “if you spill the salt, make sure to throw some over your shoulder.”
While we could come up with dozens of examples here, we have narrowed the list to a “Top 5 Myths” that won’t help you on your journey to a safe and satisfying retirement.
#5: You Have to Give Up Avocado Toast
Yes, believe it or not, this was a prominent story recently that quoted an Australian tycoon who garnered headlines for himself by blaming millennials’ financial woes on their fondness for, of all things, avocado toast.
He claimed that people were spending so much on their avocado toast lunches that they were not able to afford to own a home. While saving money on a variety of self-indulgences is a good idea, blaming avocado toast specifically is ridiculous. This is a great example of seeking headlines and not facts.
#4: Don’t Talk About Money With Anyone
Shame and fear of being judged usually stops conversations about money in most families, or even with sympathetic friends. But being honest about cutting expenses or trimming your budget in most cases will be met with understanding and even admiration. Honestly discussing your situation may lead to interesting discussions and solutions that you may not have ever considered. In fact, rather than judging you, friends may appreciate your honesty or even disclose that they need to do so as well.
Money discussions with family members should not make you feel ashamed. The fact that Mom and Dad have realistic financial concerns may enlighten children who feel the Mom and Dad Bank is never ending. In many cases, similar situations may await your children when they are adults and discussing money matters early may help them prepare for what is ahead. Of course, keeping your children informed about your retirement, health matters and long-term care, household finances, and keeping your wills and durable power of attorney documents updated and available is highly recommended.
#3: The 4% Rule of Thumb
This rule was developed by William Bengen, a financial planner from MIT in 1994, and has been the basis of retirement distribution and asset draw down strategies ever since. The rule basically states that if you withdraw no more than 4% of your retirement accounts annually—adjusted for inflation—you’ll have plenty to see you through your retirement years. Of course, there are numerous parameters and assumptions that are part of the rule. It typically assumes a 50 – 70% portfolio allocation to stocks, with the balance being in bonds.
What we have discovered with our clients is that no rule of thumb works for everyone. There are many things to consider in today’s financial planning world. Things like lower interest rates in recent years on the fixed income investments, market volatility, increased health care costs, and increased client longevity must all be considered.
Another concern is that people just aren’t saving enough to create a pool of retirement cash large enough to support that rate of withdrawal. So while rules of thumb are great starting points, they were never designed to be the absolute solution for everyone.
At SGL, we personalize every single client’s situation by analyzing all the factors that might come into play based on their individual situations.
#2: You Have to Lose The Lattes
We already discussed the “avocado toast” headline grabber but a far more popular topic that numerous financial gurus have used to grab headlines is the high cost of coffee. If you search the internet for “the high cost of lattes,” not only will you find information on the actual average cost of lattes around the nation, but going down the list you will see numerous articles on how much our “latte habit” is actually costing Americans in the long haul.
While I am a plain coffee guy—if you consider a little coffee with my cream and sugar—it does amaze me what some people will pay for their daily caffeine fix. Finding an article that blames various financial woes on what people pay for coffee may be convenient and certainly garners headlines. But what happened to just indulging in a small luxury that helps people cope with the realities of daily life? And if you do a little more research you can find just as many articles where experts have run the numbers and determined that skipping lattes will NOT solve your retirement savings problems.
#1: Only The Financially Illiterate Have Problems With Financial Wellness
There have been numerous studies and surveys that have proven that how well educated a person is about financial matters does NOT automatically equate to making smart financial choices in life.
At SGL one of our beliefs, as we deal with every client is that financial planning, is “It’s not just about your money, it’s about your life.” Financial wellness has much more to do with how much money people have and how far they’re able to stretch it than it does with whether they know the ins and outs of finance. More education on how to manage available funds never hurts, and can help a great deal.
When a client is trying to stretch an income designed for 20 years ago to cover constantly escalating college and health care costs today, not to mention inflation, no amount of financial education will substitute for more money.
We welcome the chance to have frank and informative conversations with our clients to help them develop plans that will allow them the very best quality of life possible.
If you’d like to talk to SGL Financial about your retirement planning, give us a call at 847-499-3330 to schedule your complimentary financial review.
Or, click here to fill out our online contact form right now.
We’re a Fiduciary, we’re independent, and we’ve helped hundreds of retirees just like you to create a secure retirement plan and enjoy their golden retirement years.