7 Myths about Money01.12.11
Remember the adage, “Money is the root of all evil?” The truth is it’s not. That myth has been around for generations. Money can be misused which can lead to debt. But if valued and appreciated, money can result in financial security. One of the best ways to value money is by knowing your financial facts from fiscal fiction. Take a look at these seven money myths, which if avoided could save you lots of cash.
Myth No. 1: I can spend what’s in my checking account.
This type of approach to your personal finances encourages you to spend as much as you earn. Many people lose their money on small purchases, such as Starbucks, on the way to work. Small amounts of purchases add up. The money you earn today must provide for your future emergencies and eventually retirement. If you manage your money effectively now, you will be better prepared for the future.
Myth No. 2: It’s better to wait for the stock market to get better.
In the long-term, this is a huge a mistake. Right now the market is on sale. You want to get in when the market is down. If you wait too long, you will miss out on the biggest “up” trends which is unpredictable. With a long-term approach to investing, being invested all the time is the only way to capture the profits.
Myth No. 3: All bonds are safe.
Bonds are known to be less volatile than stocks. However, bonds carry interest rate risk. A 30-year government bond may have the lowest default risk, but it carries more interest rate risk. When interest rates go up, bond prices go down, and the long-term bonds suffer the most. Also, in the long-term your money will not keep up with inflation. You will lose purchasing power.
Myth No. 4: The most skilled partner or spouse should manage the family finances.
It’s a simple fact: money is interwoven into family matters. And at all times, both partners should be actively engaged in all aspects of the family financial decisions. As the saying goes, “two heads are better than one,” both people should contribute their ideals and expectations when dealing with financial affairs. Everyone needs to be on the same page and being oblivious to how the finances are being handled can be a costly mistake; it may lead to the demise of the relationship.
Myth No. 4: Lump sums of money are mandatory to save for retirement.
The truth is with the magic of compound interest you can contribute towards retirement with smaller amounts of money. As you make more money you will gradually increase your contributions. Remember, pensions are going into the abyss. This means you will have to rely solely on yourself to fund your own retirement. The longer you wait the less likely you will be able to retire.
Myth No. 5: Renting is wasteful.
Not everyone can afford to purchase a home. Many people are not prepared to handle the expenses that come with buying a home, such as fixing a leaky roof or repairing a broken A/C, paying for utilities, etc. If something was not working properly in your home how would you pay for it, credit card or cash? If you know you couldn’t pay cash, then buying a home is not suitable.
Myth No. 7: Real estate prices always increase.
Just a few years ago, seemingly everyone was reinforcing the idea of the real estate market heading in the “up” direction. Lenders approved numerous bad loans and many bought more home than they could afford. Understand the possible risks associated with real estate and the reasons you are purchasing a property.
Written by: Ornella Grosz
Ornella Grosz is the author of Moneylicious: A Financial Clue for Generation Y