Why do we buy cars we cannot afford? Why do we keep abusing credit cards? Why do we spend rather than save for retirement? Why do we keep making the same money mistakes?
The answer to these questions is most likely because our belief systems and attitudes towards money are deeply flawed. Here are seven common money myths that could be hampering your journey to financial independence and success.
Money myth #1: Credit cards are a tool
Credit cards can be used as a tool to build a credit score, without which you’d find it exceptionally hard to borrow money from the bank to buy a house or apply for a business loan. But if you’re spending the bank’s money on things you don’t need, like expensive clothing, eating out, costly holidays, etc., credit cards can be extremely damaging. Credit card debt is excessively costly and a gratuitous waste of money if you don’t stay on top of payments.
The solution is to load money onto your credit card before using it, so that you stay out of debt while still establishing a credit rating. If you don’t have money to load onto your credit card, then you shouldn’t be spending any.
Money myth #2: If you love someone, you’ll lend them money
The fact is that anyone who asks a friend or family member for money just isn’t managing his or her finances correctly. Instead of taking responsibility for this by applying for a cash loan or sitting down with a bank or financial manager, they’re taking the easy way out by coming to you with hat in hands.
Red flag.
Lending money to someone you love is almost always a terrible idea because (1) it rarely gets paid back and (2) it creates terrible tension in the relationship. Rather refer them to someone who will be able to help them budget and save the necessary money. You’ll be doing them a favour in the long run and you’ll avoid hurting your own finances and personal relationship in the process.
Remember, money isn’t proof of love, no matter how someone might try and convince you to the contrary. If you do have money to spare and are willing to give it to a loved one in need, make it a gift or do it in exchange for a favour.
Money myth #3: Car payments are inevitable
Contrary to popular opinion, the best car isn’t the fastest and flashiest with the most modern features… it’s the car that’s fully paid for. Car payments are not a way of life; they are not inevitable and inescapable. Sure, if you need a car, you’ll need to pay for it but that doesn’t mean you should saddle yourself with crippling monthly payments.
The car you choose should be well within your means, which, in most cases, means buying second hand and keeping your choice modest. Cars decrease in value and car loans come with substantial interest rates, so the longer you’re paying it off, the more money you are literally pouring down the drain.
Money myth #4: You can’t go to college without taking out a student loan
Yes, you can! While it won’t be easy, the hard work will totally be worth it. Here are some alternatives you should explore (possibly a combination of them will get you through your tuition without having to pay back costly student loans):
- Scholarships, grants, and bursaries – do your research and work hard to earn yourself some kind of grant, whether it’s government, college, or corporate provided.
- Pay out of pocket – the earlier you start saving for college, the better. If you work part-time or in the evenings, you’ll be in a better position to keep up with payments.
- Investigate on-campus job opportunities – if you show your mettle as a student, your college shouldn’t hesitate to hire you for part-time work as a tutor, lecturer, etc.
- Get creative – how about using your skills to set up your own independent business, such as private tutoring, pet sitting, or freelance writing, etc.? There are several ways you can generate an income while studying.
Money myth #5: I’ll save for retirement when I earn more money
If you don’t have enough money left over at the end of the month to set aside for retirement right now, you’re not planning your finances well enough. Your retirement fund shouldn’t suffer, your lifestyle should. Cut back on any or all unnecessary expenses or try and figure out a way to bring in more money each month. Don’t wait for some future time when you’re earning more money to start making provision for your well-being decades from now. The more you save now, the less you’ll worry later, and the earlier you start, the better.
Money myth #6: Renting is a waste of money
For the longest time, owning a home was considered the hallmark of success and financial independence. That’s not necessarily true. Buying a home comes with a suite of expenses (taxes, maintenance and association fees) and if you don’t make a decent enough down-payment (at least 20%), your finances could take a huge hit from the higher interest rates and additional fees for private bond insurance. If you cannot afford to buy a home, it’s far smarter to rent.
Money myth #7: I don’t have enough money to invest
Setting aside money that will do more than just sit in a bank account earning little to no interest is a fundamental part of creating and growing wealth. It’s a gross misconception that you need to have a lot of money to make a start. There are several investment options and products that don’t require a substantial principle to get started. Analyse your monthly expenses and spending habits for ways in which you might be bleeding money unnecessarily and set up a monthly savings goal specifically for investing.
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