Updated: Aug 18
Myth #1. Avoid using any credit cards.
Credit cards are widely seen as a route to debt, and with reason. As a result, conventional wisdom holds that it is frequently advisable to avoid them entirely. Credit cards, on the other hand, might offer advantages if you complete all of your payments on time and pay in full each month to prevent interest. "Many credit cards feature reward schemes that allow you to earn points or money back simply by using them," says Jennifer McDermott, a personal finance expert at Finder.com.
Furthermore, on-time payments can boost your credit score, and a good credit score can make it simpler to buy a home and obtain favourable interest rates.
Myth #2: Investing in the stock market is too hazardous for my retirement funds.
In truth, money in a savings account is immune to the ups and downs of the stock market. But, given the low-interest rates on savings accounts, it won't increase much either. When it comes time to take that money for retirement in a few decades, it won't purchase as much due to inflation. The stock market, on the other hand, has a lengthy track record of growth, making it a crucial part of any long-term investment portfolio.
For example, if you are a young individual investing for retirement, a diversified investment plan based on your time horizon, financial circumstances, and risk tolerance may give you with the degree of growth you require.
Myth #3: Debt is always bad.
In actuality, holding debt on a credit card or a high-interest loan may cost a huge amount more than the amount borrowed. However, not all debt is a hindrance. In reality, certain forms of debt, such as housing and school loans, may help you advance in life and attain your particular objectives.
Furthermore, mortgage and student loan interest rates are often much lower than those on personal loans or credit cards, and the interest may be tax-deductible.
Whatever type of debt you incur, make sure to search around for the cheapest rates and never borrow more than you can afford to repay on time.
Myth #4: Equity and MF returns are not fixed
Mutual funds have given good returns over the long term but this has nothing to do with the power of compounding, which is the addition of interest to accumulated interest. Mutual fund returns are not fixed and can vary. MFs have also given negative returns in some years. Since MFs do not offer interest, the concept of compounding does not apply to them.
Myth #5: Investing is only for rich people.
Investing is for people who drive luxury vehicles and have homes in three different states.
Or is it?
The real deal: Anyone with a small pile of money squirrelled away can get a foothold in the stock market. A smart investment strategy can be the best way to let your money grow and put you on the track to financial independence. If you’re a beginning investor, look into passively managed index funds for an easy way to start building your wealth.
Myth #6: I’m so young; I don’t need to think about retirement.
Who can think about retirement when it’s so far down the road because they’re just starting a career? Besides, who can afford to save for retirement when they’re bogged down with more pressing expenses, like saving for a house and putting kids through college?
The real deal: There’s no better time to start planning and saving for your retirement than right now. The younger you start building your retirement fund, the less you’ll have to put away each month, and the more you’ll save by the time you’re ready to retire.
Gift yourself with a comfortable, stress-free retirement by maxing out your 401K contributions, and/or opening an IRA or another retirement fund. Start today and let compound interest work its magic!
Myth #7: I have enough in my account to cover my expenses so I don’t need to budget.
Budgeting is for people who are barely squeaking through the month. I have enough money; so why budget?
The real deal: Budgeting is for everyone. Without a realistic budget in place, someone pulling in a salary in the high six digits can easily spend their way into debt. A budget will force you to make responsible money choices and to be fully aware of the state of your finances at all times.
Finally, when it comes to money, everyone has an opinion, but not all opinions are true. Myths about finances may be highly harmful, resulting in you losing money over time.
Everyone's financial circumstances and aspirations are unique, so conduct your own research and comprehend the long-term repercussions before blindly following ideas.
There are other money misconceptions, but the 4 listed above are only a few of the most frequent. What are some of the financial misconceptions you've heard about or followed? Please share your thoughts in the comments section below!