Personal Financing - Watch Who You Listen To
You shouldn’t follow any financial strategy just because it says so in a book (or on a web site), or you read about it in The Wall Street Journal, or you heard some “guru” spouting on TV. Ditto for the advice you get from your financial advisers. After all, these folds have an agenda. They may want to help you, but meanwhile they are also helping themselves to your money. The fact is, if you hang around too much with insurance agents, you will probably end up with too much life insurance. If you spend your days with real-estate agents, you will wind up owning an absurdly big house. If you talk too often to your broker, you will end up with too much money in broker-sold mutual funds. The truth is, any money in broker-sold mutual funds is too much money (but we’ll get to that later). And whatever you do, don’t do what your brother-in-law says. Surveys show that most folks get their financial advice from friends and family. It’s okay to listen to your uncle rattle on about his favorite investments. But you shouldn’t do anything without first thinking carefully about the advice and whether it really makes sense.
You (and nobody else) have to make your life’s critical financial decisions, knowing that you can’t afford to do it all. So what should you do with your money? We all tend to share four major investment goals. We want to buy a decent house, put our kids through college, retire in comfort and be prepared for financial emergencies. But it’s tough to meet all of these goals. Think of the dollars involved: If you earn $60,000 a year and you want an emergency fund big enough to cover six months of living expenses, you need sock away around $18,000. Just got a new job paying $70,000 a year? You will no doubt crank up your standard of living, which means your emergency reserve also has to be bigger. Homes cost an average ot $125,000, so making a 20 percent down payment is going to set you back some $25,000, and that’s not counting all the closing costs. If you put down less than 20 percent, you have to pony up for mortgage insurance, which is obscenely expensive. lf you want to send your kid to a top private college, you ale stanng at a $100,000 bill for a four-year degree. Planning to have a second kid? The total tab just became $200,000. If you want a portfolio big enough to provide you with $60,000 a year in retirement income, you need to amass around $1 million. That’s a million in today’s dollars. Every upward tick in consumer pnces means your retirement portfolio has to be that much bigger.
From Myths You’ve Got To Avoid If You Want To Manage Your Money Right: The New Rules For Financial Success by Jonathan Clements.
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