Wednesday, November 14, 2018

Top 10 Financial Myths Busted

These are some of the worst myths when it comes to money. Don't fall into these traps. Examine your own situation, do your own diligence and make your own decisions. Once you take responsibility for your own situation, you are one step closer to financial freedom.

1. Buying a home is better than renting.

Not necessarily. Owning your own home is part of the American Dream. But is it always the smart thing? Don't buy a home if you will live in it for less than seven years. Don't buy a home if you can't afford it. You are not throwing money away if you rent. We all need a place to live. Generally speaking, it is less expensive to rent a three-bedroom home than owning it. However, if you rent, you are not building equity. To buy a home, you must consider down payment, closing costs, your credit history, maintenance and other expenses. Do your own thing to your own best benefit and don't worry what anyone else thinks.

2. You have to be rich to invest.

Nonsense. Anyone can invest. There are programs where you can start with $100. So you can start now. You should start now. Why haven't you started, anyway?

3. Carry a small credit card balance to increase your credit score. 

Not true. This will not impact your credit score. Avoid credit cards like the plague. If you do use a credit card, pay off the balance before the grace period, which is normally 25 days after you use it. If you can't do this, use a debit card or if you must, rely on cash. Better than running up your debt. If your credit card balance is too high, your credit score will suffer. If you miss a payment, you're dead for seven years. Be debt free.

4. I don't earn enough to save.

If you wait until the end of the month and try to save what is left, you'll fall into this trap. Pay yourself first. Have the money taken out before you even see it. Aim for 10 percent. By the way, that 10 percent number has been around for about 6,000 years, so maybe there is something to it. Ya think? 

5. Invest in gold.

This will save you during the Armageddon or zombie apocalypse, so if you're in that mindset, load it up. But gold is like any asset to invest in. There are times to own it, and times to avoid it. Normally, when everyone is trying to sell you gold, avoid it. Don't invest in gold if you don't know the gold markets. Besides, gold is like owning an empty lot. It doesn't generate income and there is no certainty of the price in the future. 

6. My partner manages our money, so I don't need to know about it.

Until he or she is gone. Your financial situation is so important to your quality of life, you need know what's going on. Money can be an emotional subject for some. Try to view money as just a tool, like a hammer. If you're the partner managing the money, take steps to share.  

7. Cash is king.

I'm not sure whether this means for shopping or investing, but it's not true for either. If you pay cash for something, that leaves you pretty much at the mercy of the seller. I'm not talking about $20 at the local market. Don't plop down $1,000 in twenties for a TV at a retailer, unless that is all you can do. If you use a credit card (assuming you'll pay the balance within 25 days) you might be able to get help if there is a problem. As far as investing, always have an emergency fund in a savings or money market account, but lots of cash won't work very hard for your future. 

8. A savings account is a good place for your emergency fund. 

At one time, this was true. I can remember when savings accounts paid 5.25%. If savings accounts paid 5.25%, I'd have all my money in a savings account. But this is not the world today. Savings accounts today pay .10 or .05 percent. Inflation will eat you alive. Find a money market fund. I have one that pays 2.08%. Better than a savings account and I can get the money in one day. 

9. Two incomes are better than one.

Maybe. Maybe not. Child care is expensive. Commuting is expensive. Work cloths are expensive. Lunches out are expensive. And so on. Do your own math. Make your own decision before you fall trap to this myth. 

10. I don't need an emergency fund. I have credit cards. 

Credit card debt is the number one killer of future financial freedom, other than not having an emergency fund. Have at least three months expenses in your emergency fund. Six months is better. If you're retired, you probably should have 12 months in that fund. I do and I don't worry if the water heater or AC blows up. If you don't have the discipline, do not use credit cards. Period. 

You can be smarter. 

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