Finances are one of the most important aspects of everyone’s life. Sadly, we don’t get to learn a lot about dealing with the money we make while we’re at school. The real lessons start only when we reach adulthood and start earning money for ourselves. However, even then, we’re faced with all kinds of misinformation about personal finance, which often leads people to make some huge mistakes they end up paying for decades. So, let’s take a look at some of the most frequent myths about personal finance and why you shouldn’t believe them one bit.
Top 8 Personal Finance Myths
- It’s Better to Buy Than Pay Rent
- You Have To Be a Millionaire To Be An Investor
- You Should Always Carry a Credit Card Balance
- Everyone Should Get a College Degree
- You Should Save X Amount of Money By a Certain Age
- Cash is King
- You Can Start Saving Money Later
- Investing In Stocks is Too Risky
Myth #1: It’s Better to Buy a Home Than Pay Rent
While this claim might have made sense a few decades ago, things are not so easy anymore. Today, this claim is nothing more than a myth that doesn’t make sense in reality. The “American Dream” is long dead, and everyone who took a huge loan to go to college knows that for a fact.
The story used to go like this: you finish college, then you get a good-paying job, you get married, and when you buy a house. Don’t get us wrong, buying a house after you get married is still a viable option for some couples, but doing so can put too much financial pressure on most others. Owning a home comes with all kinds of expenses that never stop, even after paying for the house completely.
Today, things are different. It turns out that renting an apartment is a better option for many, at least after college. Instead of buying a home, you’ll have to finance for the next twenty years, renting an apartment will provide you with more flexibility. You will have more time and energy to focus on your career and find your dream job.
Owning a home comes with a certain lifestyle that will slow down other areas in your life. With that said, if owning a home is your main goal, you shouldn’t wait. Just know that you’ll have to work hard for a long time until you become the sole owner of the property.
Myth #2: You Have To Be a Millionaire To Become An Investor
Most people think that you have to be filthy rich to be able to invest in a business. You need an expensive suit, a Mercedes Benz, and access to stocks to become even richer. Is that what you think? Do you really think that an average Joe can’t make money by investing?
That’s just not true. You just have to give it a try, make careful investments, and the chances are that your money will come back with interest.
Investing is one of the best ways of growing your wealth. While it used to be complicated and a practice reserved only for the rich in the past, today, anyone can invest through one of many online platforms. You no longer have to get to the right people to gain access to the stock exchange. Find a platform you need, and just give it a try.
We advise you to start with a tutorial account first. It works the same way as a normal account, and it uses the same prices and stocks, but instead of spending your own money to get started, you can see how things go with fake money until you get the hang of things.
Once you understand how things work, you can try investing a little, and if you’re skilled enough, you can grow your investment slowly but surely.
Myth #3: You Should Always Carry a Balance on Your Credit Card
We can’t say exactly how this myth was started, but it’s a common idea among the general population. Most people think that carrying a balance on your credit card somehow improves your credit scores. While something like that would be pretty nice, it’s just not true.
In fact, carrying a balance can harm your credit scores. To understand the how’s and why’s, you first have to understand how credit scores are calculated.
The overall credit scores depend on a few different factors, but the two most important ones are making payments on time and the debt-to-credit ratio. Having a balance on your card constantly usually means that you’re not paying your entire bills on time. However, as long as you make regular payments, you’re safe, but having credit all the time can negatively affect your debt-to-credit ratio, which will make your scores drop.
Every dollar you spend with your card is reported as debt, but the credit card companies only report the final number at the end of the billing cycle. That’s why you should make sure that you pay your card bills before the end of the billing cycle, and your credit scores will go up.
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If you leave some balance on your card, it will keep your debt-to-credit scores going up, even if your bills are paid on time. In other words, forget about this myth completely.
Myth #4: Everyone Should Get a College Degree
Today, most people think that you don’t have a future without a college degree. That popular thinking is a result of a long campaign by the government over the past few decades.
Getting a college degree is always a good idea, but you should first crunch the numbers and figure out how much money you’ll have to pay over the years. As college degrees became a norm, the price for education has skyrocketed and is much higher than only 20 years ago.
Going to college used to be the only way you could get the information and knowledge you’d later use to build a career. However, today, when all of the world’s knowledge is available at all times, college degrees are not that important anymore. Don’t get us wrong, a college will give you other benefits and experiences you can’t get in any other way, but the massive expense is just unjustified. It’s too much!
So, before you get a college loan, you’ll have to pay for another ten or twenty years, you should first think about if it’s worth it. If your only goal is to make money, you’re better off learning a craft or becoming a trader. There’s nothing shameful about working as a plumber, for example.
When compared to professions like doctors, you will be able to start making money much, much sooner. College graduates start earning real money in their late 20s, while craftsmen usually have over 5 years of experience by the same age.
On the other hand, if you’re planning on working as a programmer, you don’t need a college degree. There are countless online courses and tutorials you can try and learn everything you need to be successful at programming. If you try multiple programs and develop different skills, you will make more money than a college student, but without investing so much into getting a degree.
The truth is that a college degree can help you get some jobs easier than other candidates, so you should think hard if taking that way is worth it or not. If you’re a resourceful person, you can grow a healthy career without going to college.
Myth #5: You Should Save X Amount of Money By a Certain Age
Let’s face it, everyone needs money, and the more you have it, the safer you feel. Our parents and older acquaintances always tell us to save money and that by a certain age, we should already have a certain amount stored in the bank, just in case.
But, what if you went to college and started working in your late 20s. There’s no way that you can have $100.000 in your bank account by the age of 30. If you think that you should already have that money, but you’re nowhere near your desired amount, you might become demotivated and think that you’re not doing things right.
The truth is that you shouldn’t compare your savings to other people. Saving money is always a smart idea, but it can have a negative effect as well. If you do save some money at a certain age, you can feel safer and start spending more on things you don’t really need.
The general guidelines for saving money assume that you will work until you’re at least 60. If you manage to save more money than you’ve expected when you’re 30, you will feel that you’re ahead of the game and spend some of that saving without thinking twice.
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So, instead of retiring early, you’ll still have to work until you’re 60 to be able to pay all the bills and still save enough for your retirement. The best thing to do is to save as much and as early as you can so that you can enjoy life to the fullest when you get older.
Myth #6: Cash is King
Using cash instead of credit cards can help you limit your spending if you’re struggling. However, if you make your credit bills on time, there’s no reason why you should stop using credit cards. Not only that, cards offer some major benefits you can’t get if you use cash.
For example, all of the money you have is protected against theft. You’ll also earn cashback rewards and other perks that could prove to be very beneficial.
Many people prefer using cash because they find it harder to spend. The psychological barrier can limit your spending by making it harder to give away your hard-earned money. That’s great, but using only cash will lock you out of many benefits you would get by using credit cards.
If you ever lose your credit card, you can block it and get a new one without any losses. But if you lose a 100 dollar bill at the park, it’s gone forever.
Myth #7: You Can Start Saving Money Later
Out of all of the myths on our list, this one can end up being very costly. Everyone thinks that there’s enough time to save money when they are younger, but before you know it, you find yourself in a situation where some savings could really help you out.
So, instead of leaving some money on the side, you live your life to the fullest and spend your hard-earned cash on whatever you like.
While that is great at the time, it can end up really badly if you prolong saving money for too long. You should start saving when you’re making more money than you need. Otherwise, you’ll be sorry once you get older and don’t have the energy and willpower to make enough money to create a retirement fund.
Saving money on time will also earn your interest, which will grow your savings over time. The bottom line is, you should start saving as early as possible, so you can enjoy your life when you get older. It’s that simple.
Myth #8: Investing In Stocks is Too Risky
Many people think that investing in stocks is the same as gambling. Imagine investing your entire savings only to wake up tomorrow and find out that you’ve lost everything. If that’s what you think, you should crunch the numbers, and you’ll see that it’s not all that black.
Statistically speaking, stocks come with an average return of 7%. On the other hand, bank accounts and savings accounts have a much lower return rate, especially when you consider inflation. Just remember how stuff used to be cheap back when you were little. Today, the prices for the same products are a few times higher due to inflation.
That means that if you’re hoping to make money on a traditional savings account, the money you actually get will have roughly the same value in the future as it does right now. Sure, the number on the account will be higher, but you won’t be able to buy more stuff because the prices will be higher too. The inflation rate is around 3%, roughly the same as the interest rates in the banks.
Investments work a little differently. For example, you can buy some stocks today, and they can go either way in the future. The chances are that the stocks will lose value in the next few years, but if you treat your investment as a long-term deal, stocks value will probably go up after a few years.
That would earn you quite an interest if you placed your money right. Remember to invest only the money you don’t need at the moment, and it will return to you in much higher amounts if you wait long enough.
These are the most popular myths about finances that people all over the globe get wrong. As we mentioned earlier, that’s partly due to the fact that we don’t get enough education about managing money in schools.
Many people find themselves neck-deep in financial problems a few years after they start working because they think that they can make all of the payments on time and live a carefree life.
The truth is that managing money doesn’t require too many skills. You should remember not to rush into loans, mortgages, and deals that could put a lot of pressure on your bank accounts. Take your time when looking for ways to invest money, and start saving as early as possible to ensure a safe future when you get older.