When it comes to personal finance, a little misconception can go a long way. Here are a few that have been so oft repeated, they may as well be true, except they’re not in many cases. It can be expensive for you to fall into one of these financial traps.
Financial Misconception 1One such financial misconception that’s been spread around for years is that you have 3 days to make up your mind after you sign a contract. So, it's a bit of a legal misconception with large financial implications. If you decide you really shouldn’t have made the deal, you can cancel the contract. Well, that’s not really true, except in a few isolated cases. Where this can get really expensive is when you’re buying pricey items such as vehicles. You must check with your state AG’s office to find out what items in your state actually give you a grace period after you’ve signed a contract. In legal parlance the 3 day contract grace period is known as the “3 day right of rescission”.
In Washington for example, you have this right on certain products and services, such as health club memberships, some timeshares, and a few other select sales. In Texas, you can get a 3 day right of rescission on certain sales made at locations other than the seller’s place of business, with some exceptions, the same is true in Oregon. In fact, sales made in your home are one of the only places where the 3-day grace period applies in virtually all locations. The Federal law on the subject can be seen here:http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr&tpl=/ecfrbrowse/Title16/16cfr429_main_02.tpl
In short, you should expect not to be granted any such rescission and treat it as an exception if you are lucky enough to get one. You must check your state’s laws to be sure.
Financial Misconception 2Another common financial misconception is that Social Security disbursements aren’t subject to Federal income tax. This isn’t true in many cases. It all depends on how much income you have from sources other than Social Security, and if file a single or joint tax return. If you file singly, you will have a greater chance of having to pay tax on your social security income. Look on the bright side, though; the IRS can never treat all your Social Security income as taxable, only 85% of it! Make sure you go over how you’ll be receiving all your sources of retirement income with your tax professional to ensure you get to keep as much of your hard earned SS income as possible.
Financial Misconception 3You can only contribute up to the IRS set maximum to your 401(k). For many, this is true, however, if you’re over 50 years of age, the Feds will allow you to contribute a bit extra, in the event you need to catch up to where your retirement account should be. For 2007, this catch up amount is $5,000. The amount is subject to your employer’s plan limit maximum, which can be smaller, so ask at HR to find out. There are similar catch up rules for those over 50 who have IRA’s, but the contribution limits are smaller.
Financial Misconception 4Paying the minimum payment on your credit card is enough. Hardly. Actually, even though the minimum payment percentages have recently been increased, it is still a brutally slow way to pay off your credit cards and is virtually sure to keep you in debt forever. If you want to have any chance of getting debt free, especially if you ever use your credit cards, you’ll have to pay more than the minimum.
The exception to this is if you have multiple credit cards. In that case, you should pay the minimum on all the cards except the one with the highest interest rate. That one you should pay as much extra every month as you can afford to. When it’s paid off, use the money to pay off the next highest card, and so forth, until you’re debt free.
The aforementioned scenario is about the only one where consistently paying your card’s minimum payment is the proper course of action (one exception would be a no interest card, in that case, you want to pay off the card as late as possible. This is because, assuming you pay no interest, the money you use to pay off the card in the future has less value than the money you would use to pay it off today.
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