There are a lot of different things you'll read when it comes to your money. The personal finance world has lots of people with many opinions. I'm one of them! But with so much out there, it can often get confusing. What do you believe? What's true and what's a suggestion? I don't have all the answers. But there are a few money myths that I've seen come up more than a few times.
#1: Always Pay The Higher Interest Loan First
The higher the interest rate means that less of your payment goes to your principal. This is true. So, you should always pay the highest interest loan first, right?
I think you have some flexibility here. If you have a loan with a low balance, maybe consider paying that off first. It will free up some cash flow. Plus, paying off a loan will give you a ‘win' on your scorecard. Those can be very important and might be worth a few bucks in higher interest in the short term.
#2: It's Too Late To Start Saving
Many people start saving for retirement or their first home right out of the gate. If you're one of those people, then congrats. But if you're not, don't worry.
It's never too late to start saving. I don't care how old you are. Many people who give this answer are just making excuses to continue bad habits.
I don't care if you have friends that are your age who are already retiring and you haven't saved a buck. You should and you can start making a difference.
#3: You Have To Choose Between Paying Off Debt Or Saving Money
I've read at least a thousand pieces over the years on this topic. Which is better if you have extra money? Paying off debt? Or saving/investing?
I've never understood why people think it has to be either or. It doesn't.
If the answer isn't clear or you don't have motivation toward one, why choose? Try a mix of both. Either one is going to help you in the long run. And, you might find that one excites you more than the other. If that happens, then you can make adjustments.
#4: Having An Emergency Fund Is Good Enough
OK, so you saved $1,000 for an emergency fund. You're covered, right? Wrong.
The fact is that even if you've built yourself a cushion, there is still work to do. What if you have an emergency greater than $1,000? How will you restore your fund if an actual emergency depletes your fund? What if someone comes to you with an emergency of their own?
Be prepared. Think ahead.
#5: Following Someone Else's Budget Is Your Ticket To Success
A budget that works for someone else may not work for you. Everybody has different circumstances and different needs.
Also, many people are at different stages of how they can handle a budget. Someone who's never used a budget should start simple. If they tried to use the budget template of someone that's had one for twenty years, it probably won't work.
Budgets come in all shapes and sizes. There is no one size fits all.
#6: Focus On Cutting Spending To Save Money
This isn't bad advice. It's actually really good advice. However, it may not always be the best advice.
After all, the advice here only focuses on one side of the equation. Spending. This is great, but there's also opportunity that comes by making more money.
Consider that we all have limited time in our lives in which we can focus on saving money. If your time allows you to cut $1,000 per month in expenses, that's great. But what if you focused that time on earning more money instead? If you could earn $2,000 per month with the same effort, then focusing on cutting expenses could actually be costing you $1,000 per month.
#7: The Stock Market Is Always Going To Go Up
It may seem like this is true given that it pretty much has for the last ten years. But it doesn't. And it won't. Don't believe people on CNBC that tell you that ‘this time it's different'. And that the market can go up forever.
It's not and it won't.
Everybody needs to keep an eye on the market and recognize that it's not a one way only road. The experts that tell you that it can only go up probably have a plan in place. And when the market starts going down, they'll have executed their plan before they go back on the air and talk about the downturn. Trust me on this.
The fact is, they don't care about your money. They care about theirs. Don't get the two confused.
Readers, what advice have you heard that may need some corrections or clarifications? What do you think about the items I mentioned? Please let me know your thoughts in the comments below. Thanks for reading.