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Welcome to 20 myths of the financial world…busted!

Did you ever wonder where some of the information on finances and financial products comes from? How does some of this information, which is clearly wrong, become fact for the less well informed? Take a look at the following 20 myths alive and well today. How many did you believe were true?

20 Myths of the Financial World...Busted! Spendaholics Anonymous

20 financial myths…busted!

MONEY MYTH #1: Carrying a balance on credit cards improves ratings. You should carry a small monthly balance on your credit cards each month so you can use debt as a tool.

FACT: You can 100% have an “excellent” credit score without ever carrying a monthly balance.

Unfortunately there are many consumers who feel that their credit score only goes up when their lender makes money. Or, in the case of credit cards, your debt accrues interest and you end up paying more. This is not so.

According to Magnify Money, a financial comparison website, you are only harming your credit by carrying around a balance. You should pay in full each month and make sure the payment is in on time. This doesn’t mean sending the payment to the bank that day, but ensuring your bank receives the payment by that day.

If you cannot afford to pay off the balance in full, then you should pay the minimum and treat it as such: a minimum. If you can pay more then you should. Carrying it around will demonstrate to lenders that you used maybe more than you can afford to use, which is never a situation you want to be in.

In fact, carrying a balance month over month really doesn’t hold a ton of weight in your “credit worthiness.” All your really doing at the end of the day is taking money out of your pocket and forking it over to the credit card companies in interest. Want to know what has a greater factor on your credit score? Paying off your balance in full every month on time! And if you want more tips on improving your credit score, I’ll link a blog post below! See more Credit card myths at the end of the post…there’s a few!

MONEY MYTH #2: Investing in the Stock Market is Too Risky.

FACT: Any investment, whether it’s the stock market, bitcoin, or something else is a risk! While the stock market definitely has it’s peaks and crashes, historically it always moves up over time so make sure you’re following some basic investing principles to make a solid return on your money. Hedging is one way to offer some protection. Most rounded portfolios will hold some stocks and shares but they will also hold bonds. What is typically seen in the markets is, when the stocks fall – the bonds rise, and vice versa!

MONEY MYTH #3: A home is a solid investment. Owning a home is the same as adding an asset to a portfolio.

FACT: Remember how I just said all investments carry risk? Well, that goes for your home too. While most housing markets appreciate over time we have seen huge housing market crashes in the past. It is also possible that your home could lose value over time. Furthermore, you’re responsible for everything. New roof? New pipes? Lawn care? What about unexpected life changes like a job transfer or illness that may cause you to have to sell while the market is down.

Of course – this is the exact opposite if your buying an investment property. Assets generate income so, your home is not an asset, even if it has appreciated in value, because it costs you money without earning you money. An investment property is an asset because it generates a monthly income (hopefully at a greater rate than the monthly costs to own and maintain it).

Robert Kiyosaki (Rich Dad, Poor Dad) covers this off beautifully. His series “Rich Dad Scams” should be on everyone’s reading list!

MONEY MYTH #4: Renting is basically throwing away money.

FACT: Shelter is quite high on Maslow’s hierarchy of needs and so, however you put a roof over your head, it’s never a waste. Do you look at the money you spend on groceries (Maslow again) or gas as thrown away? Nope! So why would you look at rent like that? All of them fall into necessities to live your life. Even if you own a home

, you’ll still be “frittering away” money on things like property taxes and mortgage interest. So if you’re renting and keep feeling pressured to buy a home remember it may not be in your best interest right now! Especially if you’re overall monthly spend, including property taxes and your mortgage payments, will be a greater outlay each month.

MONEY MYTH #5: I track my spending and know where my money goes, so I don’t need a budget

FACT: Ha! I LOVE this one. Guess what? I had the most awesome spreadsheet, colour coded, budget system the world has ever seen and I still ended up $88,000 in debt with no job. A budget is a plan for your money – meaning it’s future oriented. You have to know where your money is going in the present to be able to control it, but it’s only one piece of the puzzle. If you have any financial goals (whether that’s travel, a home, or planning for retirement) you need a budget to make sure you’ll actually reach them. STICKING to the budget is KEY! If you have money left at the end of every month, your investment portfolio and retirement plan is sitting pretty and your savings are adequate then, sure – you don’t need a budget.

You’re part of the 1% with more money than you know what to do with. The rest of us? Budgets and Goals are ESSENTIAL.

Here’s a link to my free budget printables and planners.

You will also find copies inside the Freebie Vault along with a host of other great printables and PDF reports, etc (sign up to the blog and receive the access password). Use them. Share them!

You may also want to check out my book “Spendaholics Anonymous” which takes you step by step through budgeting, changing the mindset, meal planning, cost cutting and everything in between. Here’s the link for the Kindle version but there is a paperback version too.

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MONEY MYTH #6: A penny saved is a penny earned.

FACT: Thanks to inflation and the rising cost of living, this simply isn’t true. That penny is probably losing value as we speak which again is why it’s important to have a budget and plan for your money. We advocate an emergency fund but after that – every available penny needs to be ploughed into Income earning assets. Savers are Losers – Robert Kiyoskai (Rich Dad, Poor Dad).

Another argument is that saving for an Emergency Fund is better than investing and again – that’s subjective. Everyone should have an Emergency fund of some sorts – I have two. My first fund is a measly $1000 and is easily accessible. The second is only $5000 and requires some maneuvering to get at so – not readily available if I’m out and about. Some would advocate having three to six months of Income stashed away – I don’t. That’s too much money to tie down and watch depreciate daily. It wouldn’t be doing any good. Picture those dollars sitting in a dank, dark vault, just wasting away. I like to think of my money having a good time – looking at stocks and shares, etc and deciding which ones it wants to party with. Which ones will benefit it and make it grow. Much more positive picture there!

MONEY MYTH #7: I’m too young / don’t have enough money / have too much debt to start saving for retirement

FACT: You can open up a retirement account with as little as $50. Putting something away early on is better than nothing thanks to compounding interest, and since a penny saved isn’t really a penny earned, it’s better to check your budget and put that penny into your retirement account. Be actively involved in your retirement portfolio mix. Don’t just sit back and hope your fund manager makes some good choices. Most fund managers have a duty of care to their clients but they also have to make money for themselves and their company so choose well.

MONEY MYTH #8: You have to pay back student loans before you start planning for a future.

FACT: People will say there’s such a thing as good debt vs. bad debt and that Student loans fall into the “good debt” category meaning they aren’t damaging your credit score the same way an outstanding balance on a credit card would. This is where I disagree. It may not be damaging your credit score but are you sick of eating Ramen yet? These are the rules:- Pay off Debt / Build small emergency fund / Generate passive income streams / plan retirement.

MONEY MYTH #9: The sale price IS the lowest price.

FACT: Raise your hand if you ever bought something because it was a good deal? Oh yeah me neither…erm – what do you mean “we don’t need an Instapot, but it’s reduced to $64.99 – that’s a bargain!” Truthfully think we are all guilty of buying things we don’t actually need because the sale is just SO good – and at the end of the day buying something you don’t need is never a good idea. Has anyone else noticed now though, stores have gotten super sneaky with sales tactics. They even go as far as raising the normal price on an item for a week or two, and then putting the “sale” price as the regular price.

E.g, the holidays are coming up and there’s an item that’s normally $100 the store wants to push this season, so they up the price to $120 for two or three weeks and then put it on sale for $100 to make buyers think they are getting a good deal when in reality it’s the same price as it normally is all year. Usually, a lot of stores will let you price match and add coupons, making an already reduced item potentially even cheaper, so- just because it’s on sale today doesn’t mean that’s the best price you could get it for. I love using Ebates, which pays me a commission when I buy things. This is like taking a discount in cash which reduces the cost of the item, especially handy if they have already reduced the item in a sale.

We just purchased a Macbook air through Ebates (link shown in side bar), reduced to $545 (over 50% off) in an Ebay flash sale, I then received 3% discount in cash back. Paid to shop. Every girls dream!

MONEY MYTH #10: Cash is King Or Credit cards should be avoided.

FACT: While cold hard cash is great, you’re missing out on goodies, perks, and rewards from credit card companies. If you’re managing your money effectively, why wouldn’t you want to get some cash back or other incentives for spending money you were already planning on spending? Plus, if you lose cash or have an issue, you can’t track it and it’s basically gone whereas, with a credit card you can cancel it, and have protection in place for any fraudulent charges. Lastly, paying and using credit responsibly means a higher credit score and lower interest rates and other opportunities that paying only in cash won’t get you.

More Credit card myths …busted!

MONEY MYTH #11: The Government controls the credit bureaus.

This is the most common misconception about credit scoring. Credit bureaus are actually private companies that collect information about consumers from banks, creditors, and legal records in order to create a consumer credit report for use by lenders and other financial institutions (more on that here). The three major bureaus in the U.S. are Experian, TransUnion and Equifax and in Canada it’s TransUnion and Equifax. The Federal Trade Commission is responsible for regulating credit bureau practices and ensuring that your consumer rights are upheld but no-one overseas the factual accuracy of the information being stored about you on your file. That’s your job. Everyone should be accessing and checking the information held on them frequently.

MONEY MYTH #12: A higher Income level means a better score.

Income level is not a factor when it comes to credit scoring. That being said, although you won’t be judged based on salary, it’s still important to establish an emergency savings account. Money in the bank it crucial when it comes to protecting yourself against unforeseen expenses and other factors that could affect your credit. You don’t want to be using your credit cards for Emergency expenses that you can’t afford.

MONEY MYTH #13: More debt = Higher Credit score

You credit score is like a grade in school. You are judged based on past performance, homework and test results. Without this information, no teacher could deliver an accurate grade, and the same is true for credit scoring. Credit bureaus provide scores based on account history, length, diversity, inquiries and total debt. Only if your past history reflects sensible credit utilization, no late payments and no huge balances carried forward is your score increased. Breathe some life into your score by keeping your accounts active and up-to-date. Never use more than 30% of your available balances. Never use more than you can afford to pay back each month.

MONEY MYTH #14: We all only have ONE F.I.C.O (credit) score.

Um..Nope! Many people are shocked to find that the FICO score they bought online is different from the three-digit number used by their creditors, mortgage broker or car dealer. Although all claim to use the FICO score exclusively, there are hundreds of mathematical variations (algorithms) that could affect your overall score. Unfortunately, consumers have little control over which formula lenders use. Your best bet is to keep your credit report free of errors, negative marks and excessive debt. This strategy will help you earn the best possible score.

MONEY MYTH #15: Education does not play a role in setting your credit score

This is another myth that has crept its way into mainstream gossip, which is simply not true. Education has nothing to do with your credit history at all.

If you have poor credit and think that by taking some classes you’ll be able to build your credit without changing your spending habits, you are wrong. There are also other factors that some consumers might lump into this myth, such as gender, marital status or religion, but as noted by Experian, these are details that have no impact at all on your credit report.

MONEY MYTH #15: Debit is the same as credit

Nope – not so. Another common myth is spending habits of all kinds have an impact on your credit score. If this were the case, you might not worry about your credit as much as long as you didn’t overdraft your checking account. But the reality is your debit spending has no bearing at all on your credit report, U.S. News and World Report noted.

Your credit report is concerned with debt, of which debit does not apply. Debt is what you have borrowed from a financial institution, whether this is credit or a loan. Even more importantly is that these bills are paid back. When you use debit, you are using your own money, not money that belongs to someone else that has been lent to you.

This also means you shouldn’t spend them the same. You should use your debit card for everyday purchases and reserve your credit card for larger items. If you use your credit card every day you could be sending a message to lenders that you rely on credit, which is not an image you want to convey. Use credit when necessary and pay it down every month, or as much as you can.

MONEY MYTH #16: Checking your credit report will hurt you

NOPE! A credit report is not something to be afraid of or standoffish about. You can request one at any time and see how your financial situation is looking. However, CreditCards.com noted that if a lender checks your credit report, this will impact your score. It won’t bring it down tremendously, but it will set it back just a bit.

You might ask why or when a lender would check your credit report? This would happen anytime you apply for new credit, whether it be a loan or credit card application. This is known as a hard inquiry, and happens when a lender is evaluating your report to assess the amount of risk you would be as a borrower.

In fact, it is a good habit to get into to check your report on your own before applying with any lenders. This will allow you to know where you stand before you fill out an application. You can also fix any mistake or take some to build your report if you feel it is necessary before applying.

What if you’re “shopping around” for the best deals / rates? The good news here is that any hard inquiries of the same criteria made within a 30 day period are classed as One Hard Inquiry.

MONEY MYTH #17: I’m OK as long as I keep paying the minimum OR The amount of the monthly payment is all that matters

Well – as long as you don’t want anymore credit…ever..then sure BUT if you are looking for a new card or loan, etc then, as we discussed already, a lender will look at your total credit and utilization. If you’re maxed out and paying the minimums you can’t afford anymore debt. Go back to the beginning and read Myth # 1.

Being able to afford the minimum payment each month doesn’t equate to the fact that you can afford the debt. Budgeting to only cover the minimum each month and allocating your remaining cash elsewhere is folly.

MONEY MYTH #18: I want to clear my credit card balances so I’m going to work on the smallest balance 1^st.

<sigh> Tackle the card with the Highest Interest Rate 1^st – regardless of it’s balance. That’s the one that is costing you the most money! Take a leaf out of Dave Ramsey’s book and Snowball your payments (use the cash you were paying on the 1st credit card after it is cleared along with the payments you are making on the 2^nd card to effectively “double up” on paying down. After the 2^nd card is cleared use the cash from the 1^st card payments with the cash from the 2^nd card payments and apply that with the cash for the 3^rd card and now you’re at three times the amount of pay down but you’re not spending any extra each month).

MONEY MYTH #19: Loaning money (to friends and family) shows that you care.

It took everything I had not to Sigh again there. Whilst we love our friends and family there are other ways to help them out of a situation without handing over your hard earned cash. Teaching our loved ones money handling and budgeting will benefit them more in the long run. Give a man a fish and he’ll eat for a day. Teach him to fish and he will never be hungry again.

MONEY MYTH #20: If it’s expensive, it’s better.

Why would you think that? A sofa that costs $30,000 has more expensive materials and probably a designer name attached to it but you sit on it just the same as a $3,000 sofa. Quality does cost more BUT be wary of paying for a name and not just a better craftsmanship. A Citizen watch tells the time exactly the same as a Rolex – it doesn’t have diamonds in the face but I know if I’m late for a meeting or not!

Don’t buy gadgets and bling to impress. Buy quality good when you NEED them and not because you WANT them.