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Financial Fallacies: Telling a Mother Her Baby is Ugly
by Michael Chadwick (Write for us!)
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There is no easy way to tell a mom that their child is not beautiful. I believe all babies are beautiful. This is exactly the dilemma some people face when
it comes to their finances. Many people are very happy about some of the things they are doing financially. When I ask people "what is your past experience with financial planning and financial planners" what usually follows is a list of things they are very happy and proud of. If the things they feel good about, are proud of and believe in are in fact not the best, what should be done? My challenge is to somehow communicate to them that the things they are doing may in fact not be in their best interests. That is the equivalent of telling a mother her baby is ugly. The best way I have found to do this is the following statement: If what you believe to be true about your money turned out not be true, when would you like to find out about that.
There are many things that people believe to be true that are not, here are a few examples that I see daily:
There are many things that people believe to be true that are not, here are a few examples that I see daily:
- 15 year mortgage is "cheaper" than a 30
- You are safer having your home paid off vs. fully financed
- "Safe" investments such as savings, CD's, money markets have no risk
- Pension, 401(k), 403(b), SEP, SIMPLE type accounts always save people money on taxes
- Income taxes are high today
- You control the equity in your home
- You control the money in your pension plan
- I'll get insurance when I need it. You have to get it when you don't need it, if you need it, nobody will give it to you.
- Term insurance is the cheapest form of insurance
- Term insurance is worth the most on the day that you die
- Investing in a taxable environment benefits you more than the government
- FDIC insurance is better for you than for the Government & the financial institutions
- Opportunity costs don't effect me.
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