Financial advice is everywhere. But knowing what to listen to and what to ignore isn’t always that simple. When it comes to managing your money, putting stock in certain beliefs could end up costing you big time. If you’re looking to keep your finances on the straight and narrow, here are some key money myths you’ll want to steer clear of.
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Money Myth #1: Owning a Home is Always Better Than Renting
Home ownership definitely comes with certain perks that you can’t get when you’re renting but that doesn’t mean it’s always the smarter choice. Just ask any of the millions of homeowners who saw their property values take a nosedive after the housing bubble burst. While home values are once again on the rise, there are still a significant number of people who are upside-down in their mortgages.
Before you put an offer on a house, you need to ask yourself why it is you want to buy. While home ownership is often viewed as a long-term investment you’re not guaranteed a big return on the money you put into it. In some cases, it can take five or even ten years just to reach the break even point on your loan. If you’re not planning to stay put for the long haul or you don’t want to worry about the added expense of maintenance, repairs and upkeep, renting may be the wiser, more cost-effective choice.
Money Myth #2: You Need to Get Out of Debt Before You Start Saving
Getting out of debt should always be a top priority, but it doesn’t mean you can afford to neglect building up your savings. If you don’t have any money in the bank, you may end up going further into debt to cover an unexpected expense. Building an emergency fund while you’re in debt repayment mode is the safest bet if you want to avoid racking up more loans or credit card bills.
How much of an emergency fund you need really depends on what your income and expenses are. If you’re single and you make a decent salary, you may be able to get by with as little as $1,000 in savings. If you’ve got a family and you’re the primary breadwinner, you’ll probably want to bump it up a little more. Pick an amount that you’re comfortable saving each month and commit to setting it aside. Before you know it, you’ll have a nice cushion of cash in place for when a financial disaster strikes.
Related Article: Budgeting for a Rainy Day- How to Grow an Emergency Fund
Money Myth #3: You Have Plenty of Time to Save for Retirement
This is one of the most harmful money myths to buy into because no matter how young you are, you really can’t afford to put off saving for your golden years. The longer you wait to start saving, the less time your money has to grow which means you could come up short when it’s time to retire.
One of the things that often stands in the way of saving for retirement is the belief that you don’t have enough money to start building your nest egg. If you’re not contributing to your employer’s retirement plan, you need to ask yourself whether it would really hurt your wallet that much to start chipping in a little money each pay period. Even if it’s just 1% of your income, it can make a big difference in the long run. And chances are, you won’t even miss the money.
Money Myth #4: Buying Things On Sale Always Saves You Money
Buying things on sale can help you hang on to more of your cash but it’s not a great way to save if you’re not careful about how you shop. That big screen TV that’s on sale for $1,000 off may seem like a bargain, but it’s really not if you’re only buying it to get a deal.
The grocery store is another major danger zone when it comes to buying things on sale. It’s tempting to snag those two-for-one deals but you have to ask yourself whether you’d be buying the items if they weren’t on sale. Getting lured in by sale signs is a surefire way to spend money you otherwise wouldn’t have and end up with stuff you don’t really need.
Money Myth #5: One Late Payment Won’t Hurt Your Credit
Just about everyone’s done it at some point. Your credit card bill gets lost in a pile of mail and you don’t find it until a week after the payment’s due. It only happened once and you’ll make sure to pay it on time next month. No big deal, right? Wrong.
Buying into this money myth can really cost you. A huge part of how your credit score is calculated is based on your payment history. Even one late payment can cause your score to drop by as much as a hundred points overnight. And it can take much longer to build your score back up. If your score takes a hit, it may make it harder for you to get approved for new credit in the future and you could end up paying higher interest rates if you are approved.
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Taking control of your cash involves making the right moves with your money. Knowing how to separate financial fact from fiction can go a long way towards helping you reach your goals. Avoid these money myths to stay on the right path.
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