You can learn the basics of personal financial management and make better financial decisions based on what you see, hear, and read. But other “money talks” can be incomplete or full of misinformation, causing you to run into excruciating debt or make serious financial mistakes, affecting your ability to accumulate wealth.
Although you are not deliberately sabotaging your financial future, remember that some people are not as proficient in money as they think or seem. Also, they may not know your budget, personal circumstances, or future goals. Let’s take a look at some common financial myths and why you should question them.
We will also provide guidance to help you make a decision that suits your financial situation.
Don’t Ever Take a Pay Cut
While there is a lot of truth that you should never sell yourself short, the reality is that taking a pay cut can be inevitable at some point in your working life, especially when you change career or location, including moving to an area with a lower cost of living or moving to a less stressful career.
To get to where you want to be, you may need to do a few laps along the way, including lower pay. You may have to sacrifice some money in your career, and that’s okay, always remember that skills and time heal at least some paycheck wounds.
Investing Is Too Complicated
The majority of people think that investing is too complicated for them. This personal finance myth is very dangerous. In fact, it prevents many people from investing in the stock market (or any other investment-related to this).
And an investment is our best weapon against inflation. Stock market investment is difficult, no doubt. But you only need to learn a few key things before you start, and then you are set for your future life. There are several methods by which you can invest in the stock market. If you don’t want to invest on your own, you can seek help from a financial adviser or invest in Bank.
Income Equals Wealth
Many people believe that the more they earn, the richer they get. Well, that’s definitely a myth. While in the majority of cases, this is not true. Of course, they are very rich people with very high incomes. But many high incomes people are not as wealthy as you think. In some extreme cases, their net assets are even negative.
The main problem for high-income people is a luxurious lifestyle. The higher the money they make, the higher they spend. If you continue to spend all the money you get, you will never become richer.
Most of the time, they spend their money on depreciating assets such as cars. In order to keep up with their lifestyle, they are often burdened with high debts.
Conversely, if you invest your income in value-added assets, your wealth will increase. For those who are smarter with money, income helps build wealth. But you need to keep saving some of your income to get rich. If you save a large part of your income, a higher income will be beneficial!
Sell When the Stock Market Goes Down
This personal finance myth may be something you have heard of before. You should sell when the stock market starts to fall. In this way, you will make a profit and can buy back your stock at a lower price. In theory, it sounds good. But in the practical world, it doesn’t work like that.
The problem is that you cannot predict where you are in the market. If you can predict it, you will become extremely wealthy. The market can fall 2% in one day and recover 5% in the next week. If you sell after a 2% drop, you will lose a lot of money.
If it is a long-term investment, it is best not to sell your shares unless you need money. When the market falls sharply, it means that you can buy these stocks at a better price. This is the best you can do. Do not think that you are smarter than others. If you want an above-average return, you must take a higher risk.
Credit Cards Should Be Avoided
As long as you pay your credit card balance in full each month to avoid interest, it pays to shop with a credit card. Many credit cards offer rewards programs. By using the card for all your everyday purchases, you can quickly accumulate points, which can be redeemed for cash, travel, electronics, or investments.
Additionally, showing that you use your credit responsibly can help improve your credit score, making it easier to buy a car or home in the future. When you borrow in the future, it may even earn you a lower interest rate.
Getting rid of credit card debt can be difficult, but if you control your spending and pay off your credit card every month, you can be reimbursed.
Buying a House Is Mandatory
Buying a house is the dream of every person and is also considered to be a good investment decision. Nevertheless, this may not generally be the situation. Since the EMI to rent ratio in major cities is very high, and relocation is a common reality, it may not be wise to bear the burden of high EMI, especially in economies where job security is not strong.
Of course, it depends on your personal circumstances, but you must analyze them carefully before buying a house. Don’t buy a house just because it is a wise decision from a financial point of view.
All Debt Is Bad (Worst Myth Ever!)
In fact, credit card balances or high-interest loans can cost much more than the amount you initially borrowed. But not all debt will get in the way. Indeed, certain types of debt, such as home loans and student loans, can assist you with moving forward in your life and achieve your personal goals.
Also, the interest rates on mortgages and student loans are often much lower than those on personal loans or credit cards, and the interest is tax-free. Regardless of the type of debt you take on, be sure to shop around for the best interest rate and never borrow more than you can repay on time.
I Can Save for Retirement Later
Many young people, especially those in their 20s, don’t make saving for retirement a financial priority because it’s easy to think that we have all the time in the world when we’re young, and retirement seems like a distant concept.
Nonetheless, it is never too soon to begin putting something aside for retirement. In fact, the longer you have a 401k, the more time your assets will have to appreciate. Open a retirement account as soon as possible and contribute faithfully to it. Even if it is only 5% of your salary, the more you save, the more your investment will grow.