The Truth Behind The 7 Most Popular Money Myths
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With the internet giving so much access to money experts and financial analysts, there’s a lot of advice you can get online. Thanks to a quick Google search, you can find all the information you need on important topics like investment, credit card plans, and housing prices.
Unfortunately, there are a lot of misconceptions that are just as popular. For every fact, there’s an urban myth that might sound good but doesn’t work in real life. The problem is that if you’re not careful, the advice you follow might be nothing more than a tall tale.
1. You have to be rich to start investing.
When you hear of an “investor”, you might imagine Bill Gates or Warren Buffett. In other words, you’re thinking that someone has to be rich first. People often think that investors start with a lot of money and make tons of it. Whether you invest in one company’s shares or several different stocks, it’s easy to believe that you need a large amount of cash to get started.
The truth about this myth
There’s only one factor that matters in investment, and that is that you should start when you’re willing. Contrary to what the money myths say, you don’t need to have thousands of dollars to invest in anything.
Whether you want insurance for your home or stocks for your portfolio, there’s no real minimum to investing.
That said, the rule of thumb is to always use expendable cash. By this, I mean the money that you are willing to risk and lose. Unlike what you see in movies, you shouldn’t go and try to invest all your money in a high-earning stock or business. Not only do you lose a lot of your finances, but you might not even get more than $2 extra when you make a sale.
Instead, budget how much you are willing to lose and make sure you set aside just enough for yourself and your family. This way, you can experiment and see what investments are worth taking. More importantly, you can explore without the fear of ruining your life and your wallet.
2. Your savings account is the best place to grow money.
You’ve probably heard from most adults, if not all of them, that the savings account is your lifeline. Keeping all your money in one place sounds like a safe bet. More importantly, banks usually offer rates to help your money grow over time. Given those facts alone, you’d probably think that the smartest way to build your finances is to send all your cash to your savings account.
The truth about this myth
To understand these types of money myths, let’s first dissect how a savings account works. First of all, you can put all your money there and it will grow at a percentage rate. What you might not know is that these percentage rates are quite low at an annual rate. For an average savings account, you’d probably get 0.20% or slightly more than that.
For a high-yield savings account, which usually requires a lot of cash to qualify for, you’d only get 2-3% per annum.
In other words, while you can grow your money through a savings account, the payoff isn’t much to write home about. If that’s the case, then what can you do to help your money build over time? For me, a lot of it has to do with investment and planning. Saving your cash can be as good as the money myths suggest. However, they can only help you keep your financial life afloat. If you want to move forward and earn more, you have to explore the options around you.
Thankfully, there are a lot of ways you can start growing your money immediately. For some people, loans are a good option to buy important assets and advance their lives. For others, investment options like stocks and bonds are a good resource for making more cash on the side. Whatever you explore, remember that you have to be willing to step out of your comfort zone. A savings account will only get you so far; if you want more, you have to take a chance.
3. All debt is dangerous.
Speaking of loans, many people assume that getting a loan is a bad idea. They’ll go as far as to say that any kind of debt in your life is dangerous. Though it sounds cynical, there’s a good reason why people hate any kind of debt.
First of all, debts in your life are extra expenses that can hurt your salary. Even when you’ve finished paying all your bills and taxes, debts might force you to lose more money than you want. Not only is that frustrating, but it’s also demoralizing to see all that income used so quickly.
Secondly, debts in your life can last a long while. Many people in the US still have student debts, credit card debts, and car insurance debts that haven’t been paid. These extra costs can take several years to pay off, especially if you’re not careful with your money. That’s why many money myths would have you lose the headache of having any debt at all.
The truth about this myth
Here’s the funny thing about debt: it’s not as strict as you’d expect. Some companies will negotiate with you on how you pay them back. Sometimes, you might need to ask for a different or lower rate of payment. It might not get rid of the debt completely, but that’s a good way to keep it from eating your savings.
Another thing to remember is that debts aren’t always planned. Sometimes, you might have a serious accident or disaster problem that can cost a lot of money. You could try to pay it off with your savings, but you’d be putting yourself in danger. Instead, consider working out terms on how you can pay your debts back. You can work out deals to pay them off in five years, ten years, or even twenty years. Unlike what the money myths say, a loan can actually protect you from further expenses.
Lastly, loans may lead to debt but they don’t have to be a problem. Using your loans wisely can help grow assets in your life. For example, people can use loans to upgrade their house and remodel it for the future. With this method, a homeowner can get a comfy place to live and an expensive asset that can be sold off for the right price. So, while debts can be problematic, they aren’t the end of the world. You can always plan on how to pay them off, and you can use debts as a way to grow your stock.
4. High income means you’re going to be rich.
Say that you’re in a well-paying job that offers five or six figures for your annual income. For most people, that kind of salary is a dream. Obviously, the higher your salary is, the more money you’ll gain. For many people, that kind of lifestyle is what leads to happiness.
That’s why a lot of workers today are competitive. They want to get the best possible job with the highest possible salary. For them, it’s all about the numbers. In these people’s minds, more money earned is a quick ticket to living a luxurious and rich lifestyle.
The truth about this myth
There’s a big difference between living rich and being rich. A higher income will yield more money for you, but it doesn’t mean you’ll be swimming in cash. Usually, higher salaries can lead to more taxes in the future. As nice as better income may be, the money myths don’t usually show you the costs that come with it.
In addition, you can live a rich life and still have little to no cash. People who don’t budget tend to waste their money on gifts or luxuries. It’s not every day that someone would invest in a hot tub. Those who do might be willing to lose cash they ought to be saving for stocks, insurance, or even emergency funds.
If you want to be rich, you don’t need to buy the most expensive brands or deals. The richest man in the world, Warren Buffett, has lived in the same house he’s owned since the 1950s. If you’re looking to get a lot of cash, you need to know how to budget your expenses first. It’s better to cut down your losses or costs rather than wait for a big paycheck. Nothing is more important in the financial world than knowing how to use your money.
5. Investing in stocks is too risky.
For many people, these kinds of money myths sound like gospel truth. Because of how complicated and volatile stocks or stock trading can be, it seems like too much of a gamble. If you look at the history of the stock market, you’ll find hundreds of winners and losers in the game. What’s scary is that the market isn’t stable. The price of shares will rise and fall as companies become more or less popular. Sometimes, even a scandal can be more than enough to ruin a company’s worth.
That’s why many people shiver at the thought of making investments. For them, stocks are too unreliable and inconsistent. Even if you get lucky with one share or one investment, there’s no guarantee that you’ll strike it rich. You might even lose more money in stocks than in a casino.
The truth about this myth
By themselves, stocks aren’t as bad as people imagine. They may rise and fall in value, but it doesn’t have to be a bad thing. What ruins a stockbroker or trader isn’t the shares they buy, though the wrong choices can make it harder. Instead, the real problem is when they don’t plan things properly.
For stocks, it’s a game of timing and price. You could buy a high-value share as long as you can sell it off at a later time. More importantly, you have to keep track of the market and see if the stock will rise or fall in value. That means you should always be wary of how much the share is and if making a sale will give you more money overall.
In addition, I think it’s not smart to only prioritize stocks as part of your investment plan. As the money myths suggest, stocks can sometimes be too risky. While it’s not always dangerous, it doesn’t have to be your only choice. There are many other options you can consider to make your life easier in the long run.
For instance, you can always consider retirement plans like 401(K)s or Roth IRAs. You can also invest in your house, your insurance policies, and local businesses. Remember, stocks aren’t the only resource you have to earn well.
6. Avoid credit cards at all costs.
In many ways, the credit card is a double-edged sword. On the one hand, you can use it to swipe and purchase anything you set your mind to. It’s a convenient way to buy something while waiting for your salary since all payments under a credit card are covered by your monthly billings. In other words, using a credit card is practically how you can “buy now, pay later”.
On the other hand, it’s this very gift that makes credit cards so easy to misuse. Because you only need to swipe the card, you don’t even have to track each thing you buy. In the wrong hands, a credit card can quickly rack up several hundred or thousands of dollars in purchases. You might have even heard of horror stories where a child or a thief uses a credit card to rack up lots of debt, all of which has to be covered by the owner.
It’s because of that tempting power that makes people so nervous around credit cards. For them, it’s not worth having a card at all. Having it on your person is the easiest way to quickly build shopping or gambling problems, especially since you could lose track of what you buy.
The truth about this myth
Just like debt and stocks, credit cards and the money myths about them are all about proper management. The reason why it’s dangerous is that there’s so much freedom and range in how you use it. If left unchecked, you could quickly build a big bill without ever seeing the cost until it’s too late. That’s why you need to keep track of your expenses.
When used correctly, a credit card can help you pay off important bills or buy useful things. What you need to do to keep it safe is to be your accountant. I recommend building a list, either on a notebook or on your phone, to track what you bought using your card. By keeping an eye on how much you buy and spend, you can avoid overdoing your shopping.
In addition, credit cards rely a lot on credit scores to be effective. Banks use this score to track how often you spend and how often you cover your bills. They also account for factors like timely payments, consistent coverage, and careful use of your card. With a credit score, the banks can make easier decisions about any of your money requests in the future, like filing for a loan.
7. With a partner or counselor, you don’t need to manage your money.
For many people, the biggest issue about financial management is the management part. Keeping track of your expenses and calculating the costs each month can seem so tiring. From listing your monthly bills to checking your savings, the numbers can feel e like an endless chore.
That’s why there are people who gladly turn over all the management and information to somebody else. They might hire an accountant to oversee their billings and keep an eye on what they need to watch for. They may have a financial planner to help them map out what expenses need to be removed for better savings. They could even rely on their partner or spouse to handle the money issue. In short, money myths like these will make you think that someone else should carry the mental burden.
The truth about this myth
Never assume that a partner or financial planner is an excuse. No matter how tiring accounting is, you still need to keep an eye on your money. Being accountable in life also means knowing how much you spend and save. Remember, while you can have someone help you manage your money, it’s your responsibility.
That said, you don’t need to micromanage all the money concerns by yourself. When used right, a financially smart partner or counselor can help you out. Their job would be to advise you on what you can do to control, manage, or grow your money. However, that’s all they should cover. Don’t force them to be your calculator and investor. Ultimately, it’s your money, so you should be the one to decide how to handle it.
Do you want to grow in your finances and personal life? I invite you to get my FREE book by clicking here. I will share how a millennial can become a millionaire when you follow my strategies. Grab it now while supplies last!
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