We have all heard advice from friends or others that give us rules about using money. But are these rules always right?
Myth One – When you have a mortgage you should always have mortgage insurance. WRONG! You should have life insurance instead. Mortgage insurance payments always stays the same even if you only owe $1. Life insurance can be decreased without changing your other policy features when your mortgage is partially or all paid off. And every time you do, you pay less for your insurance.
Myth Two – You should always have life insurance to last your lifetime. WRONG! You should have enough life insurance to cover all debts including your mortgage, and keep the family going for several years. If you can afford it, make sure your life insurance will also cover a lot of the kids education.
Myth Three – Your money is safest in the bank. WRONG! Money market accounts, savings bonds, and index funds may all be better alternatives (obviously, do your research or talk to your financial advisor). True, if your money is in the bank, it’s safe because it isn’t going anywhere. Banks’ checking and savings accounts and certificates of deposit are insured by the CDIC (Canada Deposit Insurance Corporation)
But if you have a lot of cash sitting in a savings account, you’re technically losing money with interest rates so low these days. You might have the comfort of seeing a stable account balance, but you are guaranteeing that your buying power will decrease due to inflation.
Currently, inflation is at about 1 percent, which is pretty low. Unfortunately, the average savings account yields about 0.06 percent, so you’re still losing a bit of money. But a couple of years ago, when inflation was about 3 percent, the loss was more pronounced: People were losing about 3 percent of their income’s worth because their savings yields weren’t keeping up with inflation.
Myth Four – You shouldn’t make deposits to an ATM because a machine is less trustworthy than a human. WRONG! Humans can make errors too. Either way, it’s your bank’s responsibility to resolve the discrepancy. Pay close attention as you make your transactions and immediately report anything that goes amiss. Your bank is obligated to investigate the issue, so make sure that you have all necessary dates, transaction numbers, and pertinent info.
Myth Five – (coming)