The Top 10 Worst Money Myths You Need to Forget
- Written by Candice Elliott
There is a lot of misinformation surrounding personal finance. We’ll debunk the top 10 money myths.
It’s easy to become confused when wading into personal finance. We’ll show you what the biggest myths are and the actual truth about each. These are in no particular order.
1. Buying A Home Is Better Than Renting
I think this myth persists because it has long been part of the equally mythical “American Dream.” Finish college, get a job, get married, buy a house. And for many years, and still in some cases, a home was a good investment. But owning a home is not for everyone from either a financial standpoint or a life style one.
If you are young and just starting out your career, renting is a better option. It gives you more flexibility to chase that dream job (or girl/boy) and is just less work. But it might be that buying a home is better than renting, if you don’t plan to live in the home.
Becoming a landlord may be a better option for a young person with the money but not the lifestyle to own a home.
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2. You Have To Be Rich To Invest
It’s only guys in Brioni suits who drive Mercedes and have stock tickers in their penthouses who invest right? It’s not for people like us who take public transit and live in studio apartments.
Anyone, even you, can invest. And it’s one of the best ways to grow your wealth. If you are starting from zero, sign up for a Betterment account. It’s the fastest, easiest way to get your feet wet in investing.
You don’t have to read, research, or ask around. You can get started today, right now. Once you’re comfortable we can do all that rich person investing stuff. But it’s important to get started ASAP.
3. Carry A Small Credit Card Balance To Increase Your Credit Score
Ugh, where did this come from? I hate this one. No! This is a no no! Whomever told you this probably also told you the earth is flat and creationism is a thing. No! Bad!
Pay off your balance in full every month. That is how you maintain good credit. There are some other ways to build and maintain good credit but leaving a balance, any balance, is not among them.
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4. I Don’t Earn Enough To Save
In some cases, this may be true. But not in many and probably not in your case. There are people making high six figures to your low five who believe this.
Your problem is that you don’t pay yourself first. I understand. I used to do this too. I would say to myself, “What ever is left at the end of the month, I’ll save!” Well, there was never anything left at the end of the month.
Of course there wasn’t. I spent it all! Your good intentions will never pan out in this area. Instead, set up an auto deposit into your Betterment account, or at least into your savings account. You can’t spend what you never had.
5. Invest In Gold
When the economy takes a big downturn, some people will recommend buying gold. It’s safe, it’s a physical asset! Come the zombie apocalypse, Armageddon, a Ted Cruise presidency, you will need gold!
Gold is highly volatile. And if any of the above should happen, it’s probably best to have a lot of canned goods and bottled water with which to stock your bunker. Spend your money on that instead.
6. My Partner Manages Our Money So I Don’t Need To Worry About It
Oooh, this one is bad too. Are you aware of the divorce rate? It’s lower than 50%, also a myth, but it’s up there.
None of us should leave any important aspect of our life entirely in the hands of someone else. Even if your partner loves you and is trustworthy, people make mistakes which can leave them in over their heads.
If you are not communicating regularly about something as important as family finances, you may be in for some very nasty surprises. And leaving finances up to one partner is too much work, responsibility and stress for one person. Things like that are meant to be shared in a relationship.
If one person is better at it or more interested in it, it’s okay to let them take the lead. But you need to have a look in at least once in awhile.
7. Cash Is King
It’s always better to pay cash for things rather than take out a loan or to put them on a credit card. Credit cards and loans are dangerous and will ruin your life.
In some cases, you might be able to get a discount for using cash making it the better option. But using cash for most purchases will leave you with almost no recourse if something goes wrong.
Credit cards give all kinds of protections, extended warranties, fraud protection, additional insurance on things like travel. And if your card is stolen, cancel it and let the company sort if out. If your wallet full of cash is stolen, you’re out of luck.
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Abusing credit cards can ruin your life but paying cash for a diamond ring that turns out to be a fake is pretty bad too.
8. A Savings Account Is A Good Place For Your Emergency Fund
It is if you don’t like making money. And in fact prefer to lose money. Because the best interest rate on a savings account I could find is a measly 1.05%. You’ll lose money if you keep your emergency fund in a savings account because average inflation is about 3%.
If you need that money in five years or less, go ahead and leave it in savings. If you’re saving it for a big purchase like a home. But that’s not what an emergency fund is for. You shouldn’t need to access that money very often. So you want it to work for you.
Putting that money into something like Betterment will net you a return of around 7% on average over time. Much better than any savings account.
9. Two Incomes Are Better Than One
Well, of course it is. Isn’t it? Bringing in more money is always better.
Unless the money you’re bringing in is less than what is going out. This will mostly be an issue for those with children trying to decide if both parents should continue to work or if one should stay home.
Child care is expensive. Commuting is expensive. Lunches out are expensive. Having two incomes can also make you more careless with money. If you know you only have one income to depend on, it can make you a better saver and more frugal.
There are also considerations beyond money. There is a lot of debate about whether children are better off being raised entirely by a stay at home parent. I won’t wade into it. It’s a decision for each family. But money doesn’t always have to be the driving force behind financial decisions.
10. I Don’t Need An Emergency Fund. I Have Credit Cards.
As long as I have plenty of room on my cards, I don’t have to have an emergency fund. If I lose my job, it won’t take me long to find another.
It takes an average of four months to find a new job. You can wrack up a lot of credit card interest in that amount of time. Could you pay your rent or mortgage with a credit card?
You can use a credit card for a one time emergency like a major car repair and while it might sting, it won’t cause the kind of damage putting every living expense on a credit card for a few months will do.
A good rule of thumb is to have an emergency fund that contains six months of living expenses. This takes away an enormous amount of day to day worry and is invaluable if the worst should happen and you lose your job and it takes some time to find another.
I’m sorry I wasn’t able to blow anything up Mythbusters style but hopefully I still managed to put some of these money myths to bed.