20 Financial Myths That Are Costing You Money
Now is the time to renew your financial literacy.
- Cyra Sanchez
- 6 min read
Common money fallacies like renting is a waste of money and carrying a credit card balance is good for one’s credit can lead to bad money decisions. Misinformation usually leads to avoidable costs and lost chances to build wealth. Cleaning houses is an effective but difficult way to pay bills, and education on financial facts is the first way to avoid costly mistakes and spend money more wisely.
1. Renting is just throwing money away.
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Many people assume that if you rent, you’re wasting money compared to buying a home. Renting offers flexibility and freedom from maintenance costs. Given your circumstances and finances, you may find that renting is the more cost-effective option.
2. You should always buy a home as soon as possible.
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Buying a home because you feel you have to is a bad reason to buy and may lead to a bad decision. In reality, the decision to purchase a house should consider the conditions of the market as well as individual financial circumstances. Unlike your college experience, starting to rent when you are financially ready can save you from a financial strain.
3. You need a 20% down payment to buy a house.
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The 20% rule sometimes prevents prospective homeowners from buying a house. There are many different loan programs available today that allow lower down payments. Considering these options can make homeownership a possibility.
4. All debt is bad.
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Debt has a negative connotation a lot of the time. Some debts, however, such as mortgages or student loans, can be investments in your future. When debt is managed correctly, it could help in the long run.
5. You should avoid credit cards to stay out of debt.
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Some folks believe that the best way to avoid debt is to stay away from credit cards. In reality, using a credit card responsibly can boost your credit score and provide rewards. That’s about managing spending and paying off balances in full.
6. You don’t need an emergency fund if you have credit cards.
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Emergency funds shouldn’t come from credit cards. An emergency fund acts as a buffer without the risk of going into debt. Setting up this fund keeps you covered for any surprises.
7. You should pay off all debt before saving for retirement.
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To be sure, paying down debt is not a bad approach all on its own, but waiting can waste precious time for compound interest. Finding a balance between paying down debts and putting money away for retirement is critical.
8. Investing is only for the wealthy.
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The thinking that “investing is only for the rich” is a perception. You can start investing with only a little money in many ways. These investments can grow exponentially over time through the power of compound interest.
9. You need to be an expert to invest in the stock market.
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It can be overwhelming and intimidating for new players in the stock market, but research and tools like index funds can make investing easy for novices and more advanced investors alike. Small gains can grow large over time.
10. Timing the market is essential for investment success.
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It is said that predicting the highs and lows of the market is important. Trying to outguess the market rarely ends well. No matter how the market is performing, investing regularly usually is better.
11. A high income guarantees wealth.
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High income doesn’t equal wealth. Even someone who makes a lot of money can have a tough time financially without the right budgeting and saving. Living within your means is the key to financial stability.
12. You should prioritize paying off your mortgage over investing.
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Paying off mortgage debt often makes sense, but it shouldn’t always take priority over investing. Investments, particularly those that generate high returns, can accelerate the growth of your riches. In general, the optimal approach is to balance mortgage payments and contributions to investment.
13. You don’t need to save for retirement if you have Social Security.
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Depending only on Social Security benefits may not provide enough retirement income. These benefits are meant to supplement, not replace, personal savings. Building a robust retirement fund ensures a comfortable future.
14. You should avoid all credit to maintain a good credit score.
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Some believe that avoiding credit altogether will protect their credit score. The downside to having no credit history is that it can be challenging to find loans or those at favorable interest rates. Cautious credit utilization is essential for establishing and sustaining a solid credit history.
15. Leasing a car is more cost-effective than buying.
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Leasing may provide lower monthly payments, but no equity is built. In the long run, ownership can be more cost-effective, particularly if you continue to drive a vehicle years after paying off the loan. Your driving habits and financial situation will help determine the option that’s right for you.
16. You should always buy in bulk to save money.
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Buying in bulk is viewed as a guaranteed way to save. However, buying perishable products in bulk can result in waste. Hence, evaluate your buying habits before purchasing in bulk.
17. You don’t need insurance if you’re healthy and young.
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Young, healthy people might assume they don’t need to bother with insurance. Unforeseen medical emergencies can be expensive. Insurance protects you when it comes to unexpected charges and gives you peace of mind.
18. You should wait until you’re older to start saving for retirement.
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Putting off retirement savings can have a significant effect on your finances. Investing early benefits you because your investments grow based on compound interest. Making small contributions early pays off big time.
19. You should avoid discussing money matters with family.
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Money is a taboo subject in families. Better financial planning and awareness can come from open conversations. Talking about money can also make you feel supported by and working alongside your partner toward a common goal.
20. You don’t need to budget if you’re financially comfortable.
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A common misconception is that budgeting is only for broke people. Even if you’re fine, having a budget helps you use your money more effectively and allows you to plan for the future. A reasonable budget ensures your money is working for you, not the other way around.