7 Personal Finance Myths You Need to Stop Believing Right Now
Welcome to this blog on 7 personal finance myths you need to stop believing right now!
You have probably received a load of financial advice from different people since the time you received your first paycheck. While some of it may be right, sometimes it is hard to distinguish the hype from the facts when it comes to personal finance. For instance, you probably once believed that you need to be rich to start investing until one day you got introduced to SIPs! However, money-savvy people should know better about how to best utilize their hard-earned money to receive maximum returns.
So, here we are debunking the most common finance myths to give you the REAL deal about good financial planning.
1. Savings are as good as investments.
You wouldn’t be saying this if you understood the power of compounding!
Think of it this way – with savings, your money, although safe, is just lying stagnant or not growing with time. But with investments, you can literally make your money earn more money for you at a negligible amount of risk. Therefore, investments make more sense as you need your money to grow with the rising inflation rate to support you in the long run.
2. You need to be rich to start investing.
One of the biggest excuses of late investors and financial myths debunked!
You DO NOT have to be wealthy to invest because you can start with as little as 500 to 1000 rupees a month. As your income increases, you can increase the investment amount too. All you need to do is set aside a sum for saving (usually for an emergency), a sum for investment, and the rest for expenses as soon as you get your paycheck.
Just be consistent with your investments and soon you will realize how well your wealth is growing.
3. Credit cards are great to use in emergencies.
Credit cards should be your last resort in case of emergencies.
Every time you swipe a credit card, you are accumulating a small debt. Moreover, its usage comes with a high interest rate. Therefore, credit cards should be used with appropriate planning so that you don’t get stuck in a debt trap.
Ideally, you should have an emergency fund that can support you to pay big medical bills or when you have lost your job.
4. Buying a house is always better than renting.
Although homeownership is considered to be an integral aspect of adulting, the truth is that it is much more complex and needs extremely strong financial planning.
Personal finance myths associated with owning a home do not explain the details of the costs and commitments that come along with it. For example, a home loan is usually necessary. Apart from that, you need to consider interests, insurance payments, repairs, and maintenance costs. Moreover, staying in a rented house would make more sense if your career requires you to relocate every few years.
5. A car is an essential purchase and a good investment.
Well, the pros and cons list would be helpful here.
For some, buying a car may be necessary to cover the cost of transport, while for others, it may not be of big financial help, in the long run, considering that a car is a depreciating asset and requires continuous maintenance – this is what disqualifies it from being a good investment – or an investment at all.
However, if you’re confident that buying a car would improve your quality of life and help you save time and effort, you can make use of EMI to ease the payment load.
6. Retirement planning can be done after 40.
This is one of the most common finance myths that not only prevents time to work in your favour, but also prevents your money to work as hard as you do.
Depending on the retirement life you have planned for yourself, you need to start a retirement fund as early as your 20s. This way you can even start with small amounts of investments and still save big by the time you reach your second innings.
7. All debts are bad debts.
While you need to handle high-interest debts and live within means, debt is sometimes necessary to accomplish certain larger goals and can be taken with calculated risks. Avoiding a debt trap then becomes a matter of debt discretion rather than debt villainization. For example, taking out a loan for higher education can provide helpful financial resources in the future. It is like investing in an asset with promising returns that can ensure that you pay off the loan sooner than later.
Knowing the facts from the myths is crucial when you need to make financial decisions. With these 7 myths busted, you are now empowered to handle your money better now and in the future.
Shiv Nanda is a financial analyst who currently lives in Bangalore (refusing to acknowledge the name change) and works with MoneyTap, India’s first app-based credit-line. Shiv is a true finance geek, and his friends love that. They always rely on him for advice on their investment choices, budgeting skills, personal financial matters and when they want to get a loan. He has made it his life’s mission to help and educate people on various financial topics, so email him your questions at [email protected].
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Disclaimer: We are not experts or certified financial advisers. Our advice for you based on what has worked and continues to work for us. If financial problems occur we are not responsible for them and advise that you speak to a professional. That being said, we believe wholeheartedly that the advice we give to you will help your financial situation greatly.