Today is Smoke and Mirrors day. A whole day dedicated to seeing through the deceptions of life and understanding what is really going on.
When it comes to finance and savings, or any topic where people feel they don’t have a strong understanding of the overall issues, it’s easy to pass off the wrong advice as hard and fast fact. It’s for this reason that the Internet is swimming in misadvice. So today we are looking through some of the most prevalent money myths and taking them apart to show the ways in which they are simply not true.
It’s time to see through all the smoke and mirrors.
1. Keeping a small balance on your credit card improved your credit rating.
This 100% could not be more wrong. Having (unscheduled) unpaid debt is never good for your credit rating. It makes you look unreliable and like you’re lousy at managing your money. In addition by carrying a balance on your credit card, you’re actually robbing yourself because you’re paying the credit card money extra in interest payments.
The best thing to do? If you want to use your credit card as a way to improve your credit rating (well done) then you need to use it regularly, and pay it off in full each month.
2. It’s not worth saving unless you have a specific goal in mind
You hear a lot of this kind of advice floating around the Internet: “don’t save for nothing. You will never be successful”, or “unless you have a purpose your savings are wasted money just sitting there doing nothing”.
This isn’t true. Whilst psychologically it can be incredibly beneficial to have an end goal when it come to your savings, as it makes you more focused and you actually save faster, it is not a necessity.
Saving money is always beneficial. Even if you are only making small savings on a daily basis, such as when you use your oval wallet, it has an untold number of benefits. First off, you are actively changing your behaviour, relearning healthy financial habits, which will stand you in good stead for the future. Secondly, by saving money you are creating a ‘safety net’ between you and any unexpected costs or bills that may come your way. By having this money you are protecting yourself from taking out loans or incurring unexpected debt. Thirdly, our money doesn’t have to just sit there and do ‘nothing’.
If you are building a small ‘emergency’ fund (well done) then this should always be readily available for you to access at any given moment. However, if you have other savings that you do not need to touch for a specific purpose you can look into investment options that could pay dividends in the future.
You don’t just need a holiday or a new car to be the motivation for putting away money.
3. Cash is better than credit
Again, this is another myth worth debunking. Using cash has some great benefits, there’s no denying that. If you pay or everything using cash then you are always aware of exactly what money you have, and there is no way you can ever overspend. You can’t spend what you don’t have, right?
The thing is, using credit cards provides you with a whole host of benefits that you don’t have access to by only using cash. Many cards offer fraud protection, insurance, and a guarantee of repayment from the credit card company if your money is stolen. If your debit card, or wad of money, is stolen from your wallet then I’m afraid that’s your bad luck and you need to sort it out yourself. Often banks do not replace stolen money if a debit card is used.
4. Home-ownership is better than renting
Whilst not adhered to everywhere, this is a philosophy that has a lot of traction in the UK. Almost from birth, we are conditioned to believe that owning your own home is a sure fire way to retain your invested money and keep yourself off the streets.
Again, not strictly true. In these uncertain times owning property is no longer a sure fire way to ‘invest’. The fluctuating housing market means that the 200k you paid for a house last year may have now decreased to only 150k. Your hard earned cash will have been essentially ‘erased’ and there is nothing you can do about it other than sit on the bricks and mortar and hope the market swings back your way some day in the future.
Furthermore, owning your own property makes you all at once a lot less flexible. If you are in a place in your life where you are trying to climb the corporate ladder, or maybe you’re trying to decide what is really ‘right’ for you right now, then owning your own home can actually be a cumbersome responsibility that anchors you to one place.
Home-ownership is something that should be considered from every angle before being embarked upon.
5. I have time until I start saving for retirement
I understand. Sometimes it’s easy to feel like you will be working every single day in an unending line until the sun implodes and everything dies, so you can be forgiven for thinking that retirement is too far away to think about. However, it is never too early to plan for retirement.
Experts say that you should save from between 15% to 20% of your income, starting in your 20s. NOW some of us are 30 and still haven’t quite got it together, so we should ideally be saving even more of our income. In fact some figures state that if you wait until yu’re 45 to start saving you will need to save as much as 27% of your income, which is just not feasible, and so you will be working until past 70 in order to make up the difference.
The later you start saving the longer you will need to work in order to have enough money to live on.
The earlier you start, the easier retirement will be.