There are certain financial planning tips that have successfully stood the test of time and are most likely to be the case in the future as well. For example, certain financial tips such as building an emergency fund, investing in mutual funds, paying off credit card loan, sticking to budget are some tips that will hardly go out of style. Contrary to that, there are certain financial planning tips that are generally accepted among investors but haven’t held up quite as well as financial tips mentioned above. In this article, we will focus on four such financial tips that you may wish to ignore.
Four financial planning tips you might want to ignore
Here are four generally accepted financial planning tips that you might want to reconsider:
- Work on paying off your mortgage bills as quickly as possible
Surely, getting rid of debts or loans is a good thing in general, but it might not be the best idea for mortgage payments for several reasons. For starters, if you pay off your mortgage, you would not be able to enjoy tax benefits on mortgage interest which is a significant tax deduction. Secondly, with the fall in interest rates, the returns on investments are likely to rise. Finally, paying off your mortgage bills entirely might create a situation of liquidity crunch.
- Avoid borrowing money from your 401 (k) plan
It might not be a good idea to take a loan from a 401 (k) plan, simply to supplement your lifestyle. Examples include taking a trip to Netherlands or buying the latest phone or car. However, if you have heaping personal loan debts or credit card loans, borrowing money from your 401 (k) plan might not be that bad of an idea. Note that, while a 401 (k) loan against your employer might serve as a savior to pay off high-interest rates debts such as credit card bills or personal loan debts, it might not fix bad habits such as overspending.
- As you grow old, own fewer stocks
While some individuals nearing their retirement might require their mutual fund investment plans to compliment other income streams to support them financially after they have left their jobs, many investors do not require any such provisions. Some of these investors use retirement plan-based income or pensions to support their lifestyle post retirement. Remember the percentage of your portfolio being exposed to stocks or equities has less to do with an investor’s age and more to do with total sum of wealth with the investor at any point of time.
- Possessing rental real estate could be a good means to produce cash flow
Several individuals believe that possessing real estate properties is a straightforward and effortless way to generate additional source of income while enjoying the added advantage of building a substantial amount of wealth over a period of time. Surely, being a landlord can help you to claim several tax deductions each year such as operational expenses mortgage interest, depreciation and repairs, and property taxes. However, several individuals fail to realise that some of these breaks can be recaptured if you decide to sell the property.