This post was most recently updated on October 15th, 2022
When it comes to money management, Many people have different beliefs about money and debt. Myths can make a serious impact on your ability to make sound financial decisions and potentially ruin your wealth potential if they aren’t debunked earlier.
You can make huge mistakes related to money and debt just because you’ve bought into a faulty culture of personal money and debt advice. Some of the advice could be from a well-intending yet misinformed relative, teacher, friend, or those you look to as financial professionals.
So how can you correct some of the most common money myths that you may still believe? The most vital thing to do is to recognize that they are myths.
Let’s look at the 5 most popular money management myths:-
1. You have to be rich with a lot of money to save and invest
It is a myth that only rich people can save and invest. Anyone can do it, and it’s one of the best ways to grow your wealth. If you begin now to protect and gradually increase the amount that you keep, you’re able to accumulate enough reserves that can help you accomplish your goals.
It is crucial to make enough savings as much as you can while you are still able to pay for essential items such as rent, utility bills, and groceries. You will reap the fruits of your little effort later like when an emergency strikes or an unforeseen event!
2. Credit cards are bad and should be avoided.
Another credit card myth to expose is that you should avoid credit cards. The truth is if you pay off your card balance in full each month to prevent the accumulation of interest, making purchases with credit can most of the time be worthwhile.
A significant number of credit cards offer reward programs. If you make daily purchases with your credit card, you could quickly increase the points that you can redeem for cash, travel, or investment.
Also, proving that you can use your credit responsibly can help you increase your credit score which can make it easier for you to get a bigger loan to buy, like, a car or a home loan. It may also help you get a lower interest rate when you want to borrow in the future. If left to accumulate, a credit card can be disastrous. But if you monitor your spending and pay the card off every month, it could be pretty rewarding.
One of the other benefits of credit cards is Revocability & Fraud protection. Not widely known. If you buy something on a credit card and are not satisfied with your purchase or get scammed, you can ask for a refund. You can do this with the merchant or with the bank that issued your credit card.
If you come across a fraudulent charge on your credit card. While you can do these things even on your debit card, the money would’ve left your bank account by then. In the case of a credit card, the money would still remain in your bank account until you write a check. Psychologically, the fight to keep money in your pocket is easier to win than the fight to retrieve it from somebody else’s.
3. Debt is good
People hold on to another myth that there is a difference between good debt and bad debt. Good debt is considered as taking out a loan to buy a home or get an education while taking personal or credit card debt is viewed as bad debt.
They’re often believed to be good debt because the debt is for funding an investment which can later be financially beneficial. The interest rates on mortgages and student loans are typically much lower than those on personal loans or credit cards, and the interest may be tax-deductible.
In some cases, even bad debt, for example, using a high-interest rate credit card can be beneficial. But there needs to be a limit to this myth.
Don’t spend too much in a house that you can’t afford just because it’s good debt. Don’t go to the most expensive school you find because student loans are available.
Debt is an enemy of your income because the monthly payments you pay to the credit card companies could have been savings put towards your retirement, your kid’s college, or even your down payment on a new house. Debt is thus not always right.
Consider reading – How to get out of debt in 5 steps
4. I am too young: I’ll make a lot of money to catch up on my retirement.
Years can advance pretty quickly without notice. It is good to prepare for your golden days early enough. Don’t put off the preparation for retirement for later if you’re able to start saving right away.
It’s tempting to put off retirement planning while you work on your other financial goals like paying off student loans, saving for a house, or putting your kids through school. These goals may feel immediate, while retirement feels so far away. But having more time on your side can be one of the best reasons to start saving for retirement. It’s important also to consider the opportunity cost of not saving.
Compounding happens when you earn interest or dividends on your investments, and if reinvested, the value of your investments grows. Capital appreciation over time increases the value of investments.
If you aren’t able to start saving early in your career, you may have to keep a lot later to make up for the value of lost time. So start as soon as now.
5. I already track my money, I don’t need to budget.
If you know how much money you have in your bank account, that’s enough. No. That’s a myth. Your statement balance is not a budget. If you keep track of your spending, you’re only analyzing how you already spent your money. However, a budget is a plan of how you’re going to spend your money. It helps you know what to prioritize, for example, should you pay off your debt come before saving for your emergency fund, and planning for the future?
Have a look at top 7 Budgeting Tools To Better Manage Your Money
FAQ on Money management
What is the best way to manage money?
Having an expense tracker is usually the best way to manage your money. By doing this you can keep a tap on where your money is flowing and whether you really need to spend that amount.
Is credit card loan good for me?
A credit card loan is the worst loan to have. Credit card companies charge very high-interest rates on your credit card loans (up to 40% per annum). If you have to take a loan then consider taking a personal loan instead of a credit card loan.
What are the best money management apps?
Some of the best money management apps are :-
Monefy – Money Manager