There’s a whole lot of noise out there when it comes to personal finance. Here, we deconstruct three prevailing financial myths to help you make the most of your hard-earned dough. Just remember to invite us over once you buy that private island.
Myth #1: To maximize tax savings, put every spare penny into your RRSP.
Reality: RRSPs are great if you’re already in a high tax bracket; if you’re not, the tax savings today will be nice, but you’ll pay the piper when you cash out your RRSP – likely at a higher marginal tax rate. On the other hand, a Tax-Free Savings Account means you pay tax on your principle now, but any gains are tax-free for life.
Myth #2: Renting is stupid; buying a condo is smart.
Reality: Renting is cheap; owning a condo is not. Never mind the huge down payment; every month, you’ll have to shell out for not only mortgage payments, but also property taxes and condo fees, which can equal a modest rent alone – plus a new stove, or whatever other appliance happens to break down. And, with condos sprouting like weeds in most Canadian cities, their rising value is no sure bet.
Myth #3: For smart, safe investing, nothing beats a mutual fund.
Reality: Mutual funds are great, but they also have high fees; your fund manager’s got to get paid. Exchange-traded funds (ETFs), which are computer-managed indexed funds, are much cheaper, and they often produce better returns over the long run. At least, with a computer doing the work and not someone with a taste for cigars and fine wine, your fees will be lower.
Image courtesy of deedoucette.