Misconception #7: Prepaying my kid's college tuition or my funeral costs protect me from inflation.
By prepaying, you avoid the price increases and thus the amount of price increase becomes your rate of return. The average inflation rate for college tuition nationally is about seven percent, so that is like getting a seven percent return on your money. That's not too bad, but that same money invested over a long time in a good growth mutual fund will average twelve percent and you can save for college tax-free.
The same is true for prepaid burial plans. A lot of these are sold right after people have gone through the gut-wrenching process of planning a funeral. I've gone through it and it was not a fun time. So, while pre-PLANNING the details of your funeral is wise so your loved ones don't have to experience it, Pre-PAYING is not so wise.
For example, let's say that age 39, a parent suddenly dies and you have to make all the arrangements. You decide not to put anyone through that on your behalf and purchase a $3,500 prepaid burial plan. Not only is your rate of return poor on this type of investment, but it took that $3,500, invested it in a mutual fund averaging twelve percent and died at the average age of seventy-eight - your mutual fund would be worth $368,500. I think that is enough to pay for the pre-planned funeral with a little left over.
Misconception #8: You don't have time to work on a budget or retirement plan.
I often wonder when our society became one where the majority just live for the moment. The fact is that you don't have the time to NOT work on a budget or retirement plan. The quality of your life at retirement depends on your becoming an expert in managing money today. That begins with looking at the end result you want to achieve and then working backwards to the present; then setting up the budgets and programs that will achieve your desired result. John Maxwell has a great quote on budgeting: 'A budget is people telling their money where to go instead of wondering where it went.'