8.5 Common Money Myths Debunked – A Financial Exposé

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10 Money Myths Debunked

It takes hard work and strong commitment to manage money responsibly.  The consistent effort pays off in priceless rewards that last a lifetime. Most people manage their own finances quite well without the help of a professional adviser. However, even just one bit of misinformation can ruin a top-notch financial plan. Money myths and rumors have been responsible for leading some very wealthy people to the steps of the bankruptcy court.

Falling for false facts when it comes to money matters can be a very expensive mistake. On the other hand, the accurate information guarantees financial increase and freedom now and in the future. By far, the majority of information that is circulated to the public is reliable. More often than not, erroneous advice is unintended, not deliberate. Whatever the motive, some common misconceptions about finances have spread like wildfire and been accepted as truth for decades. 

Money Myths Debunked

There is no greater time than the present to debunk myths that have impacted how people use credit, save money, and make investments. In no particular order, ten of the most popular money myths are uncovered below.

Myth 1: Using Payday loans will improve your credit score. 

Payday loans, although common, do not report the loan or the payment to the credit bureaus. This means you get a small payday loan, usually a few hundred dollars up to a couple thousand, and must pay it back within a short time frame such as one or two weeks. The interest rates can be high, but the good news is that you can get approved for a payday loan right away, even with bad credit, and get your cash the same day. To summarize, if you pay off your payday loan in time, your good efforts will not increase your credit score.

Myth 2: Only people with high income can save money.

This untruth has prevented people from setting aside money for emergencies, special occasions, and even retirement. Of course, people making less money cannot save as much as others. But saving even a little money consistently will build a nest egg over time. Lower income savers should take small steps while keeping their eyes on the long term goal.

For instance, depending on the interest rate, a millennial that saves about $50 a month can potentially have $75,000 to $80,000 at retirement! That translates to saving about $12.50 a week, faithfully and without fail.

Another excellent way to save on a budget is to avoid spending money unnecessarily. Everybody has something they can sacrifice for the sake of their future.

Myth 3: Credit cards are bad.

Consumers should never overuse credit cards, but they are in no way bad. Although it is true that credit cards can create financial burdens, they can be used to build a healthy credit profile with proper use. 

Borrowers that demonstrate responsibility with diverse forms of credit have higher credit scores.

Money Myths about Credit Card Debt

Credit cards are unsecured credit (no collateral needed) that is relatively easy to get. The best use for credit cards is to charge only what can be paid in full by the time the bill is due. Eventually, borrowers can get approved for other credit such as mortgages and auto loans.

Here are a few credit cards that offer multiple rewards and will jump start your journey toward a healthy financial profile!

Myth 4: You can’t invest and save for retirement at the same time.

Savings accounts are a relatively safe place to sock away money for retirement. Yet they do not earn much with interest rates so low. Also, when the money is withdrawn decades later, it won’t be worth as much because of inflation.  Financial planners advise savers to create a diversified strategy for investing that includes securities and bonds, in addition to stocks. This spreads out the risk of loss. Starting early in life also gives plenty of time to recover any losses and/or earn money much faster than with a savings account alone.

In short, yes you can save and invest for retirement at the same time. Like most things in life, moderation is key. Continue onward contributting toward your retirement savings, but also consider investing to maximize your financial results.

Myth 5: Young adults should wait until they are older to save for retirement.

Immediate responsibilities like paying student loans and saving for a home make it challenging to add retirement savings to the budget. But starting early is the best move to make since investments grow with time – the more time, the better the return.

Myth 6: Having zero debt is the best way to get good credit.

All credit is not bad, although bad credit is not good. This means that certain debt is actually advantageous to have. A mortgage is an example of good debt because it funds an investment (a house) which is a financially beneficial asset. Likewise, student loans fund an education that will be used to earn more money to build a financial portfolio.

Money Myths about Mortgage
Student Loan - Money Myth

Myth 7: The co-signer is not affected if a borrower does not pay.

People with bad credit who really need a co-signer might try to convince a friend or relative that co-signing will not have any effect on their credit. The truth is that the co-signer is equally liable for the debt. If the borrower defaults, the lender will (legally) come after the co-signer, who must pay the debt or face negative reports on their credit.

Myth 8: Making the minimum payment on credit cards is enough. 

Only the credit card companies benefit from customers who make only the minimum payment. Interest adds up on all balances that are carried over each month. Essentially, the cardholder ends up paying much more for their original purchase if they don’t pay it off at the end of the month. 

Bonus! Myth 8.5: Monitoring your credit will have a negative affect on your credit score.

No, credit monitoring does not hurt your credit score. In fact, this process where a consumer accesses their own credit reports is what’s called a “soft inquiry,” and it’s actually a recommended part of good credit management.

However, if a consumer applies for credit then a lender or company will make a request to review your credit reports as part of the loan application process and a “hard inquiry” will be added to your account. Hard inquiries usually impact credit scores.

It isn’t always easy to spot misinformation because of the volume of money myths going around.  Many people make the mistake of assuming that information is true because it is widespread and popular but that is not an indicator of accuracy. One way to spot a potential financial scam or untruth is to follow the age-old adage, “if it sounds too good to be true, it probably isn’t.”

Finding the real truth about managing personal finances involves taking extra steps before committing to any transaction. To start with, consumers should read and make sure they understand any contract or agreement prior to signing. If there is something they don’t understand they can get accurate answers from researching or asking someone they trust. There is no such thing as being too cautious when it comes to finances because so much is at stake.

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Jenna West

Jenna West has built up a list of published work on various global recognized websites like RE/MAX Canada, Freeman Audio Visual Canada and now carries the title of Freelance Content Manager for Smarter Loans. Jenna adds creative value and fresh perspectives on all things finance, especially pertaining to millennials, and has a natural knack for turning a page full of words into a visual reading experience.

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