There are some money myths which we must debunk at the earliest for effective personal finance management. Unfortunately, these fallacies can be potential barriers to people who are just starting to take control of their financial situations. Personal finance advice comes in many shapes and forms.
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From listening to podcasts, having social media conversations, surfing the Internet and chatting with an acquaintance at a party, we get lots of advice on our financial life. As you continue your journey to financial well-being, here are 10 personal finance myths you should ignore.
1. It’s Easy to Become Rich
Remember that becoming rich is an art that requires sound financial investments in well-regulated financial instruments. Through meticulous planning and a disciplined approach, one can build wealth over the long term. For most of us, it's a far-off dream that someday, eventually, we might be able to turn ourselves into self-made millionaires. But the truth is, building wealth isn't about putting all your hopes into "someday." You're never too old to start building wealth, but if you start when you're young, you have far greater potential to amass a fortune--and more time to let that fortune compound itself as you grow older.
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Also read: What Are The Main Objectives of Investment?
2. Tax Paying Isn’t Necessary
Most millennials have a wrong notion towards filing income tax returns and are comfortable in placing this vital exercise right at the bottom of their list of priorities. However, paying taxes is an essential part of the financial journey. Taxes keep the economy running and help the government fund various schemes for betterment of the people.
3. You Can Only Invest If You Have a Large Income
If this is your excuse for not saving, here is to tell you that it is one of the biggest personal finance myths that exists. Your ability to save and invest has nothing to do with your income. Whatever your income is, you need to save at least 10 percent of it every month. As we all know, investments in SIPs can be started for as little as Rs 500 every month. So start saving today, irrespective of your income.
Also read: Evaluation of Investment Products
4. Having a Credit Card Improves Credit Rating
This is some element of truth in this, but having a credit card improves your credit rating only if you pay back all your dues every month. Only then credit cards can be used as a tool to improve your credit rating. On the other hand, if you have a credit card and are unable to pay your bills on time or make the minimum payment, your credit score will be severely damaged. Just having a credit card is not enough to improve your credit score.
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5. Buying a House is Mandatory
Buying a house is thought to be a good investment decision. However, that may not always be the case. With the EMI to rent ratio being sky high in major cities and relocation a common reality, it may not be a wise decision to take up the burden of high EMIs, especially in an economy where job security is not very strong. This would, of course, depend on the individual situation, but one needs to do a thorough analysis before buying a house and not buy a house just because it is said to be financially a wise thing to do.
Also read: Explained: What is Credit and Why is it Important?
6. You Can’t Save Money and Pay off Debt at the Same Time
It’s not uncommon for personal finance gurus to recommend putting all of your disposable income toward paying off your debt. While doubling down on debt, especially if it’s attached to a high interest rate credit card, is smart, you shouldn’t necessarily neglect saving entirely. Consider how you would pay for an emergency without any money in your savings - you might be tempted to pull out your credit cards and end up with even more debt.
7. You Should Keep All of Your Money in a Savings Account
Savings accounts are stable and convenient, and they offer the ability to access your money immediately when you need it. For that reason, you should keep some cash reserves on hand, particularly for emergencies. However, you should consider investing a portion of your funds that you know you won’t need, so you can make your money grow over time.
8. Expenses Decreases in Retirement
We cannot believe that expenses will drop for sure, during retirement. Certain expenses may indeed reduce or completely go away while other expenses may creep into your budget, such as medical expenses. How much money each of us would need for our retirement also depends on the personal lifestyle choices that we make. But if we want to sustain a comfortable lifestyle even during your retirement, then we’ll only need so much more money to accomplish that. So, assuming that you would require half the amount of expenses in retirement can prove to be a disaster.
9. The Stock Market Is Too Risky for My Retirement Money
It’s true that money in a savings account is safe from the ups and downs of the stock market. But it won't grow much either, given that interest rates on savings accounts are typically low. When it’s time to withdraw that money for retirement a few decades from now, your money won’t buy as much because of inflation. The stock market, however, has a long history of growth, making it an important component of your longer-term investment portfolio.
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10. You Should Be Debt-Free Before You Invest
While most people assume this is true, it can serve as a huge obstacle to your financial happiness and freedom. Paying off your debt means reduced stress, lower risks, and a greater ability to withstand personal emergencies. Investing means building a reserve that can protect you and your family and provide you with sources of passive income. Perhaps most importantly, it means accumulating enough money to retire comfortably. Therefore, both are necessary to your financial well-being.
(Check out 'Learn & Grow with Wizely' to read and learn more about personal finance management.)
