We all grow up hearing some version of the same financial advice: spend less, save more, and invest early. While these points are all true, there are other money management tips that are just plain false. We’ve debunked seven popular money myths that might be causing confusion.
Myth #1: Debit is ALWAYS Better Than Credit
Credit cards get a bad rap for causing people to rack up debt, but they can have many benefits. First, many credit cards offer rewards in the form of cash-back, gas discounts, and other bonuses. Second, building and maintaining a strong credit history is crucial for your financial wellness. One easy way to achieve this is by using your credit cards, keeping your balances low, and paying your bills on time. Finally, many credit cards offer purchase protection, which makes them a smart payment method for big-ticket items.
Myth #2: Buy a Home at All Costs
Owning a home gives you more freedom and flexibility, but it also comes with increased responsibility and maintenance costs. For many people, including those who like to move around a lot, don’t want to worry about the cost of home repairs, or can’t afford the larger upfront costs of homeownership, renting might be the better choice.
Myth #3: Investing is Only for the Rich
Anyone with a small amount of savings can invest. Whether it’s in a short-term certificate account, long-term IRA, or even in the stock market, there’s an option for every goal. A smart investment strategy can be the best way to put your money to work and get on track to financial independence.
Myth #4: My Partner Manages the Finances, So I Don’t Need to Know About Money
Every adult should have a handle on the family’s finances, regardless of their partner’s involvement. While it’s fine for one partner to actively manage the family’s money, it’s crucial for both to be aware of the state of the family finances and to be capable of managing household expenses and investments in the event of an emergency.
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Myth #5: Credit Cards Will Get Me Through Any Financial Crisis
Depending on credit cards to get you through a financial emergency is a great way to dig yourself into a deep pit of debt. Depending on your situation, you may not have the means to pay your cards on time, and with interest and late fees, you could be spending a lot more than you charged in the first place. Credit cards should not be relied on during a real financial emergency, such as a job loss, divorce, or serious illness. It’s best to proactively build an emergency fund consisting of three to six months’ worth of living expenses so you’re prepared for any unexpected events.
Myth #6: I’m Too Young to Think About Retirement
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 401(k) contributions and taking advantage of employer contributions (if offered). If your employer doesn’t offer a retirement plan, you could always open an IRA or look for other higher-interest accounts. Start today and let compound interest work its magic!
Myth #7: I Have Enough Money; I Don’t Need to Budget
Budgeting is for everyone – not just those living paycheck to paycheck. Without a realistic budget in place, even individuals making six-figure salaries can easily spend their way into debt. A budget will force you to take a look at where how much you’re spending in each category (household, car, subscriptions, etc.) and help you make responsible money choices.