I wish to conclude the financial myths with you this week.
Myth 5: Self-insurance. Others believe self-insurance is a must-have. Insurance is there to decrease the risk in your life, nothing more, nothing less. Yes, the less insurance you have of various kinds, the more risk you expose yourself to.
It is indeed highly recommended to buy a wide variety of insurance because usually the financial cost of the insurance is low compared to what it protects you against. However, I think it tends to come down to your personal situation-if you donÃ¢â‚¬â„¢t have many assets or resources to protect, thereÃ¢â‚¬â„¢s not much need for insurance.
If youÃ¢â‚¬â„¢re driving a better-than-walking car, for example, comprehensive insurance is pretty much overkill.
Myth 6: Avoid debt like a plague
In so many words, Gunderson distinguishes between good debt and bad debt. In general, bad debt has high interest rates and is used to buy stuff that doesnÃ¢â‚¬â„¢t help you generate additional income.
Good debt has low interest rates and is used to generate additional revenue in your life. Student loans, for example, would be “good debt.” The problem with this dichotomy is that the line in the middle is blurry Ã¢â‚¬â€œ thereÃ¢â‚¬â„¢s a giant grey area in this dichotomy.
What about a car loan? Some car loans might be “good debt” Ã¢â‚¬â€œ like a used-car loan to help you get back and forth to work Ã¢â‚¬â€œ but a car loan to buy a Mercedes is likely “bad debt.” But whereÃ¢â‚¬â„¢s the line?
Myth 7: A penny saved is a penny earned
I agree strongly with the argument here. Gunderson argues that price really doesnÃ¢â‚¬â„¢t matter compared to value when making a purchase.
Does the item actually provide deep personal value to you? If the answer is yes, donÃ¢â‚¬â„¢t be afraid to spend money on it. The challenge here is doing enough personal reflection and self-analysis so that you clearly understand what things provide value in your life and which things do not.
I hope this has been thought-provoking enough. It will make you think about your money. Having said that, I wouldnÃ¢â‚¬â„¢t advise you follow all of the advice in my column as gospel truth Ã¢â‚¬â€œ apply your ingenuity.