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Financial Friday #164: Busting Money Myths & Improving your Money Mindset!

Are you a glass-half-full person or a glass-half-empty person when it comes to your financial outlook? With soaring prices, rapidly rising interest rates, and talk of a looming recession, it is getting increasingly difficult to remain positive and believe that things will get better in the second-half 2023.

In addition to economic conditions, common money myths can also affect your mindset by perpetuating misinformation or misconceptions about personal finance, investment strategies, and wealth management techniques. Negative money myths can significantly inhibit personal financial growth and wealth building by creating limiting beliefs and behaviors. So, what are some commonly held money myths?

You need money to make money. It’s true that $10,000 invested the exact same way as $1000 will give you proportionally larger returns, but the power of compound investment returns is very strong and often overlooked. The sooner you get started investing with whatever spare funds you have, the closer you will be to achieving your long-term financial goals.

Money is too complicated. Managing money is actually a lot less complicated than many other day-to-day tasks. We spend hours learning how to use the hundreds of functions in a mobile phone or researching online to find the perfect hotel for our vacation, but we don’t prioritize learning about money management.

Investing is too risky. Investing can definitely be risky, but that risk can be managed according to your needs and risk tolerance. Investing all your money in cryptocurrency is risky, investing in an S&P 500 index fund and holding it for 5 years.... not so much. You need to learn to evaluate and manage risk, not avoid it altogether.

It’s someone else’s job to figure my finances out for me. You could rely 100% on a financial advisor, but it would be expensive. It's also a leap of faith that many of us are not comfortable with, despite a financial advisor's fiduciary duty to serve in your best interest. Even if you do rely heavily on professional advice, building your financial literacy will help you to make informed decisions and give you much better peace of mind.

It’s too late for me! A lot of Canadians are way behind on their retirement planning, and this is an often-heard money problem. The reality is that it is never is too late to do better with money. Learning to manage and control your daily expenses can help at any age and even if you only have 5 or 10 years to retirement, getting started with investing should still give a nice boost to your nest egg down the road.

It’s easy to focus too much on the nuts and bolts of personal finance and overlook your mindset. For example, if you want to jump into self-directed investing, you must learn about ETFs and other investment options, how to assess and mitigate risk, manage fees, etc. However, an extreme risk-averse mindset can be so limiting that you would never consider investing in the stock market in the first place!

It can also be hard to discern exactly what kind of mindset you have when it comes to money— a little self-analysis might give you some great insights on your relationship with money and how you can start making some changes. It’s definitely a good starting point.

Resources:

Are we getting RRIFed off by mandatory withdrawals?
When you hit 71 your RRSP converts to a RRIF and you are forced to start taking money out — this article has some good points to consider when planning out how you are going to spend those  retirement funds.

Short-term rentals the new mortgage helper as interest rates climb
Building a basement suite can provide a steady income but depending on the style and location of your property, short-term rentals (like Airbnb) can provide a lot  more flexibility and a lot more income.

How much debt is normal in Canada?
The headlines scream we all owe $1.84 for every dollar of disposable income, but a lot of that is mortgage debt. What is normal for debt these days when it comes to car loans, lines of credit and credit cards — and how does it differ between age groups?

Expect another interest rate hike July 12
A majority of economists think the Bank of Canada will raise their rate to 5% next week which would put the prime lending rate used as a benchmark for many type of loans and mortgages at 7.2%. What is behind this and when will it end?

Understanding investment fees and statements
A great summary from investor rights advocate FAIR Canada on understanding your fees on various types of investments (ETFs, mutual funds, annuities, GICs, bonds) including a fee calculator to see clearly just how much your mutual fund MER fees can cost your retirement fund.