You can’t avoid money myths. Everyone seems to have great faith in their financial knowledge, which has led to the rise of financial myths that simply aren’t true. If you believe any of the four following myths, you could be hindering your financial growth.
1. Paying Off Debt is More Important Than Saving for Retirement
There are many financial experts out there, and many argue for the aggressive paying down of debt. Of course, in an ideal world, no one would have any debt to pay off. However, following this advice and putting all of your extra money toward debt could hinder your future retirement plans.
If you primarily have consumer debt, paying it off should be a priority. The interest rates on this debt can cripple your monthly budget and your credit score. Other types of debt, such as a mortgage or student loans, generally have lower interest rates and provide tax benefits. Either way, it’s important to save for retirement while making progress on your debt payoff. This is especially true if your employer offers a 401(k) match. If you do not max out your 401(k) contributions, you are leaving far more money on the table then you would by decreasing debt payments.
2. Buying is Always a Better Investment Than Renting
The American dream usually includes buying a home. You’ve heard it all: homes appreciate over time, provide tax benefits, and gain equity that you can use in emergencies. All of these things are generally true, but renting may be a better option, depending on where you are in life.
Homes often come with more unexpected expenses than rentals, including repair costs, new appliances, and landscaping. If you don’t have enough in savings to cover a massive repair bill, buying a home could mean running up credit card debt and worsening your financial situation. Consider purchasing a home when you have a healthy down payment and a solid budget that includes money for home repairs and upgrades.
3. Always Pay Cash
When you look at radical financial plans, you’ll often find a recommendation to use cash for everything. Envelope budgeting is one example of this. For many people, going all-cash is simply impractical. Having all of your funds available in cash leaves you vulnerable to theft, in which case you have no recourse. Although debit cards can be stolen, you aren’t liable for unauthorized charges if you immediately inform your bank. On top of that, many banks offer cashback bonuses for debit card use. Using cash for certain purchases can help you avoid unneeded spending, but don’t feel like cash is the only way to go.
I, personally, LOVE spending cash for most things over using credit cards. That said, a cash system has sometimes worked for us and other times it has not. At this time I am not using a cash system but hopefully I will be able to go back to it someday.
There are tons of money myths out there, and more seem to pop up all the time. Before following any financial advice you hear from a friend or on TV, do some research and make sure it is based in fact (and will work best for your lifestyle).
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