Popular Financial Myths Debunked

There’s no shortage of advice being dispensed about money — how to make it, manage it, and increase it — thanks to personal finance websites, money pundits on television, and feedback from family, friends, and even your neighbours. All of this can make separating fact from fantasy difficult at times.

We’ve gathered some of the most well-known financial myths to debunk. While we strongly advise you not to accept this as financial advice, we hope that it will at the very least offer you an opportunity to gain a new perspective and challenge your current financial situation.

Myth : Buying Is Better Than Renting

Reality : There is a very popular myth that buying is better than renting.

Renting has always had a negative stigma based on the idea that those who rent are throwing away money or paying someone else’s mortgage instead of building equity in a home. However, changes in the housing market and taxes make it more difficult for owning a home to be the sure-fire way of accumulating wealth. Owning a home also means less flexibility and brings with it countless additional costs such as homeowners insurance, community fees, repairs, taxes, and more. In other words, buying isn’t always better than renting.

Myth : Larger debts should be tackled first.

Reality : The significance of paying off larger loans with higher interest rates first is preached by financial advisers all over the country. While paying off higher-interest debt is an excellent idea, there’s also something to be said for paying off minor balances. People are motivated to see modest balances vanish, according to Harvard Business Review research. Paying off numerous small-balance accounts can have a big influence on one’s sense of accomplishment.

Myth : Investing is only for rich people

Reality : Is it true that only the wealthy can benefit from investing?

The answer is simple: no.

Of course, the more money you invest, the more money you can make, but everyone can benefit by investing wisely and adopting a long-term mindset. Time and interest are your best friends when it comes to investing.

Myth : You can save for retirement later.

Reality : Many young adults, particularly those in their twenties, do not prioritise retirement savings, owing to the fact that retirement appears so far away. It is, however, never too early to begin planning for retirement. Even if it’s only 5% of your salary, the longer you put money aside, the more time your investments have to develop.

Myth : You should have 3 to 6 months of income in an emergency reserve.

Reality : The three to six months' savings rule of thumb has been around for years. The reality, however, is that you need enough money in your emergency fund to pay your expenses for the entire time it takes to find a job, (as that’s when most people dip into such funds.) Depending on your occupation, it can much longer than three to six months to find work. Given that reality, your emergency reserve may need to be far larger.

Myth : Credit cards are the gateway to debt.

Reality : Credit cards can be a source of problems for overspenders, therefore the conventional wisdom of avoiding them all together is reasonable. Credit cards, on the other hand, aren’t always bad. They can, on the contrary, be utilised as instruments to help you achieve your financial goals, such as improving your credit score and paying off debt. To prevent interest, all you have to do is make your payments on schedule and in full each month. Furthermore, many credit cards offer reward or loyalty programmes that allow you to earn points or money just for using them.

Credit cards will reward you if you do your homework and utilise them responsibly.

Myth : Money doesn’t buy happiness

Reality : Money doesn’t buy happiness, as we’ve all heard time and time again. It turns out that it does, particularly for low- and middle-income individuals. According to a Princeton University study, test respondents' views on life improved as their wealth climbed. Furthermore, increases in income were proven to improve emotional well-being and the quality of daily life.

While we strongly advise you not to accept this as financial advice, we hope that it will offer you an opportunity gain a new perspective to understand and manage your finances better. This article is not in any way related to any of the Fund Ourselves products.