Myths About Money.Whether the economy is in a growth or recession phase, you will still have to make smart monetary decisions about your daily spending, borrowing, investing, and money saving options. The market is saturated with “financial gurus” and tips for unsuccessful investing. This, first of all, gave rise to many myths about money, and it’s time to debunk them. These seven myths will help you better manage your finances.
Myths About Money You Must Know
- I don’t earn enough to save …
This is one of the most popular myths. Especially among young people who have just graduated from university and earn less than they would like.
You often hear “I’ll save in my 30s” or something like “What little I save won’t change anything.”
In fact, saving is one of the main paths to financial independence. The wonders of compound interest make it possible to profit from any investment. Usually people assume that they need a lot of money in order to invest, but this is not the case.
Suppose that at the age of 25 you start investing 10,000 rubles monthly in an investment account that earns 8% interest annually. If you continue to invest until the age of 65, then by that time you will have accumulated more than 20 million rubles. But starting to do the same at 35 years old, you will reduce your future capital to 8.8 million rubles. The sooner you start, the more compound interest will do for you!
- I only need to pay the minimum credit card payment.
Paying the minimum credit card payment every month not only prolongs the life of the loan, but also damages your credit history. The longer the loan term, the more interest you will pay. Usually, the minimum payments for credit cards are 4-6 thousand rubles every month. If you have only 120 thousand rubles of debt, with a 20% interest rate, then you will need 36 months to pay the balance, and it will cost you an extra 40 thousand rubles of interest.
Pay as much as possible on your credit card debt. Better yet, ditch the card and use cash.
- Monthly loan payment is a decisive factor.
Making financial decisions about buying something based on what time your monthly payment on a loan / installment plan for a product or service will cost you can lead to negative consequences. Just because you can afford this monthly payment doesn’t mean it’s a great buying decision. One of the main reasons individuals have credit problems is because they look at monthly payments rather than the total amount.
Buying a Mercedes C class for 2.5 million may cost you 50 thousand rubles a month, but buying a Mazda for 1.7 million will reduce your payment burden to 35 thousand rubles a month. That extra $ 15,000 you can save each month could be the start of your retirement savings.
Just because you can afford the monthly payment doesn’t mean you have to buy anything.
- Buying a house or apartment is an investment.
This myth is primarily associated with the American Dream and, on the other hand, our Soviet past with communal apartments and the dream of our own coal. The very real estate in which you plan to live should not be perceived by you as an investment, it is most often a liability, not an asset. Remember this and do not think that you have invested in something in order to increase your capital. It can only be an investment if you are in the buying / selling or renting business. In any other case, it is a liability.
- Having a deposit can improve your credit history
Companies that provide credit ratings to banks for borrowers mainly control timely loan payments and the best way to improve your rating is to avoid missing payments, late payments and payments below the minimum – otherwise all this negatively affects your credit score.
- You get what you pay for.
People usually associate high prices with quality. Most of the time this is the case, but sometimes you overpay for the average product or service. Paying for expensive things doesn’t necessarily make your life better.
Let’s use the car example in Myth 3. You save 800,000 rubles and drive a Mazda. Not to mention, Mazda is much cheaper to maintain than Mercedes.
Sometimes the cheaper option is better.
- Debt is bad
In many of the myths described above, it is said that you need to pay off debts as soon as possible. But this does not mean that debt or credit is bad. The ability to get a loan is very important because we need cars, houses, educational or medical loans, or, for example, loans for business development, and so on. The idea is to help you avoid making too many monetary commitments.
Everyone should evaluate their life and make the best decisions. What works for you doesn’t always work for someone else. However, the golden rule in financial management is that you need to make sure that your expenses are less than your income. If you can follow this rule, you will be in good financial shape and achieve your financial goals.