Myths about money are common. Just because youâ€™ve heard a saying or two through the years doesnâ€™t make it true. Take advice from financial experts and learn the facts rather than accepting these common money myths:
Myth #1: All Debt Is Bad
Carrying a huge balance on a credit card or taking out a high-interest loan to pay off other debt is not good financial management, but certain debts can help you move ahead and achieve your personal financial goals.
Funding an investment â€“ in your home or in your education â€“ can be financially beneficial in the long run. The interest rates on those types of loans are typically much lower than rates on credit cards or personal loans; plus, the interest can be tax deductible. When you do need to fund a valuable investment in your future, be sure to research the best rates available from quality lenders and donâ€™t take on more debt than you can comfortably afford to pay back on time.
Myth #2: Cash Is Better Than Credit Cards
You can track your purchases more efficiently with credit cards, so avoid cards only if you have trouble controlling your spending, running up credit card debt you canâ€™t pay off each month. And if you carry a significant amount of cash, youâ€™re out completely if you lose it.
Many credit cards offer a rewards program that you can redeem for travel, electronics, investments or even cash. Plus, demonstrating proper use of credit cards can help increase your credit score, making it easier to borrow money you may need to buy a home or a car.
Credit card companies also offer benefits such as travel insurance and protection against fraudulent use of your card.
Myth #3: Donâ€™t Trust the Stock Market for Retirement Money
Money in a savings account is safe from stock market volatility, but given the extremely low interest rates banks offer, your money wonâ€™t grow by much. Plus, inflation is sure to factor in by the time you need the cash in a few decades, so youâ€™ll actually lose ground in your retirement savings.
Itâ€™s true that in the short term, the stock market can be volatile, so avoid investing in the market with the idea of a quick turnaround. The market does have long history of growth, so is an overall better choice for retirement savings. Find a trusted financial advisor and develop a diversified investment strategy with mutual funds, stocks and certificates of deposit; then monitor your investments quarterly and adjust as needed.
Myth #4: The Sale Price Is the Best Youâ€™ll Find
Itâ€™s easy to fall prey to the considerable hype that surrounds a limited-time retail deal that sounds good, but may not be the best price available. Many consumers rush to take advantage of such offers that flood email in-boxes, thinking theyâ€™ll miss the opportunity if they donâ€™t act quickly.
Before committing to such a deal, check online for other offers on the same product or service that may be even better. Be sure to check with retailers you frequent. Then take time to think about the offer itself. Is is something you really want and need, or are you buying just because it sounds like a great deal? If itâ€™s strictly an impulse purchase, itâ€™s usually not a good idea to snap it up.
Myth #5: If You Can Only Save a Small Amount, Itâ€™s Not Worth Saving
If you start saving early, say around age 25, putting aside just 15 percent of your paycheck, including your employerâ€™s match to your 401(k) if you have one, youâ€™ll have enough money when you retire to maintain your current lifestyle. So if you are young, start saving right now.
If you missed that mark and start saving later in life, you can Â gradually increase the amount you save and still hit your financial goals. Save as much as you can while still paying for essentials. When your financial state improves through a promotion or a better paying job, pay yourself first by putting more into your retirement savings, while still enjoying the balance of your new-found cash.
Myth #6: Cancel Extra Credit Cards to Boost Your Credit Score
Having too many active credit cards is never a good idea because you might be tempted to use them all. Plus, keeping up with managing a fistful of cards is an administrative hassle. When you cancel a card, however, your credit score takes a small hit. If you cancel several at the same time, your score will take a much bigger hit. Financial advisors recommend canceling no more than one credit card per year.
A better strategy is to lock up the cards you donâ€™t want to use in a safe place and cancel them gradually. At the same time, refuse all of the credit card offers that pour in on a weekly basis. Keep your oldest card active if you can. The long credit history youâ€™ve established with that card is good for your credit rating.
Myth #7: A Penny Saved Is a Penny Earned
Hereâ€™s a myth that may be the best known clichÃ© about money. Scrimping and saving every available penny is not a way to get wealthy. If youâ€™re in a low-paying job, all of the hoarding you can possibly do wonâ€™t make you wealthy, because your necessary expenses eat up all or most of your available cash. The real key to financial security is earning more and practicing fiscal responsibility.
If youâ€™re already making sound budget decisions but still not getting where you want to be, you need to find ways to increase your income. Talk with your employer about positions at a higher pay level and learn what you need to do to be ready for a promotion. Network with peers who can give you leads on job openings and recommendations in their company.
Enhance your education and your skills in your chosen career in order to be ready for advancement, or enroll in school part-time to prepare for a new career. Many employers offer tuition assistance to conscientious employees who want to better themselves. Even if you have to pay for your continuing education yourself, investing in your own potential is one of the best ways you can spend your money.
The next time you hear any popular saying about money, think it over and disregard any maxim that doesnâ€™t apply to you.
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