There will be times over the course of your money management journey where people would throw in some financial myths for you to consider. There are a lot of myths that older people observe and follow when it comes to their finances. And the same people have the tendency to pass them on to the younger generation as unbendable facts that needs to be pursued at all cost.
They are very adamant about passing on the tradition because they have been religiously following these myths for most part of their life. They are believers and swear by the effectiveness and results it has brought to their financial lives. But as managers of your own financial journey, you need to screen and be quite discerning with your financial decisions in life.
One wrong move with your budget and you can feel the effects of that for quite some time. But when it comes to your financial problems, it is not fair to just put the blame squarely on these financial myths. There are a multitude of reasons you can be in the red and these myths can just be one of them provided you also started following them.
As soon as people start giving you pieces of advice with what to follow with regards to your finances, you always have to take them with a grain of salt. This is because what works for some people, provided these myths do even work at all, does not make it a hard and fast rule for all the others. The financial situation will differ from one person to another and as such, it would require different management styles.
Financial myths to stay away from
As you try to manage your own finances, you will encounter some of these money myths along the way. The idea is to understand and be able to identify these myths so you can stay away from them as they do not really put any good value into your financial journey. At most, it could only put your finances in peril.
Your credit limit should not be synonymous to your budget
It is not surprising that you use your credit card to run your household budget. There are even circumstances that you assign cards for very specific purchases to be able to maximize its advantages. Some use a specific credit card to pump gas because or to buy groceries to get rebates or reward points. But one thing you should never do is max out your cards intentionally. There might be emergency situations wherein you use and max out your card but this should never be the rule but rather the exception. Do not factor in the credit limit of your credit cards when you are making a household budget.
Things will always work out and there is no need for reserve funds
It is a good idea to be an optimist in life and but that does not mean you should turn a blind eye to potential pitfalls along the way. You need to be prepared for whatever circumstance that will come your way in the future such as medical emergencies, home repair, a car accident and even job loss. These are just some of the things that might happen which can impact your finances and could be best addressed by reserve funds. Sadly, CNBC.com shared that there are about 29% of American consumers who doesn’t really have any reserve funds to speak of. This can lead to more financial complications over the course of time especially when emergencies arise.
Insurance is just for the weak
Many people refer to this as something you hope you never need but would undoubtedly be a crucial item when you need it. Take an insurance for your home for example where you might see it as unnecessary expense because you don’t feel like anything is going to happen. If you look at the statistics and base what NFPA.org has reported on the average number of fires in a year against the population, less than 1% of homes are affected. The chances of your house getting burned down is so slim but what if it happens and you do not have insurance? It is better to have it and not use it than need it and not have it.
You are wasting your money on a retirement plan
Live in the moment is what most people would tell you when the topic of retirement fund comes up. This is because you are forced to give up some luxuries you could enjoy at present to prepare for future needs. The reason why saving up for retirement sometimes get a bad reputation is because there are some people who are overdoing it. They take extreme measures that it scares people away. The idea is to plan for the future but learn how to enjoy life at present as well. You can enjoy a good meal with friends every now and then but not every night. You can buy new clothes which you can use for work but not every week.
Sound money advice
Now that you have an idea about the financial myths you need to avoid, here are a few sound pieces of advice you could consider when it comes to managing your finances.
- Prepare a budget and stick to it. One of the cornerstones of your financial strength would be your household budget. You need to be able to put one together at the start of your financial journey. This would enable you to have a blueprint of your overall finances and help you make informed decisions. It might be intimidating at first but you do not need a complicated formula to begin with. You can start off with writing down your income and expenses and ensuring that you are able to cover every payment with the income that is coming in.
- Plan ahead for big expenses. The time will come that you would want or need to consider big ticket items such as buying a house, purchasing a car or starting your own business. In these cases, you would need quite an investment to begin with either as downpayment or equity on the venture. Financial myths will not play a big part in these as you have to put in forward planning to veer away from a big loan. Of course the possibility of taking out a mortgage or a car loan will always be there but being able to save as much as you can as down payment would help you lower down the amount you have to borrow and in essence, save you interest payment as you go along.
- Invest in yourself. Making investments is one of the smartest things you can do and one that can help you increase your financial strength in the future. But what you might have in mind would be stocks and other forms of bank investments. There is nothing wrong with these options but you need to remember that you can also invest in yourself. You can take up short courses to improve your skill or acquire a new one which you can earn off of. The bottomline is that you need to think of yourself every time you are talking about investments.
There are a lot of financial myths out there that could find its way to you. It can come from your parents, grandparents and even acquaintances and friends. The idea is to keep an open mind when coming across these myths and always look at the bigger picture and how sound the advice is when you benchmark it with accepted financial practices.