Common Money Myths
In an information age, it can be hard to know who to trust about finances. It can be hard to know what to believe when you have been taught one thing by a mentor and heard of another thing on a YouTube video. So, how do you know what is right? In this article, we will debunk some common money myths and hopefully answer some financial questions you have.
1. All debt is bad
It’s never fun to be in debt. You always have interest and payments hanging over your head—but debt is not always bad. There are some cases where it can even be good or necessary, and those times include buying a home, getting a modest car, and getting student loans.
When buying a home, it is rare for someone to have enough to pay cash for the entire house. A mortgage is necessary. However, there are smart ways to pay less interest over time, including getting a shorter term length and putting down a higher down payment.
Getting a car is also a necessary purchase for many. While it is possible to pay cash for a car—and recommended—an auto loan is a common choice for many. And because there are so many options and luxuries available, it can be easy to want to get a car that you cannot truly afford. So, when shopping for a car, carefully prepare and save as much money as possible. But, it is okay to get a reasonable loan, as long as you can afford it.
The last debt that is common for many are student loans. Getting an education can be very expensive, but it can also be a very worthy investment for your future. Even still, getting scholarships and working during college can be helpful to not accrue as much debt.
These three examples are times in life where taking on debt may be necessary for your situation. When this happens, make a plan for how you will pay off that debt.
Credit card debt, on the other hand, is not good debt. This is because this debt has very high interest. Having credit card debt also likely means that you are consistently living above your means. This can lead to lifelong debt and can greatly limit the opportunities you have.
2. You Can’t go to College Without Taking Out Student Loans
Even though student loans are sometimes necessary and can be a smart choice for your future, you don’t have to get them. Here are some ways you can go to college without taking on debt:
- Apply for scholarships
- Get a part-time job or even two jobs
- Save up for tuition while working full-time
- Get a job that has tuition reimbursement
- Go to an inexpensive college/university
College can be an amazing experience, and not having to worry about going into debt can make it even better.
3. You Have to be Rich to Invest
Investing doesn’t have to start when you are out of college and making “enough money,” and especially not when you are about to retire. Investing can start now—and it can start small.
Starting with as much as $10 a month can add up over time, and it can also get you familiar with investment strategies. There are great beginner investment programs, such as Acorns or Betterment that specializes in passively managed diversified profiles. Investing in 401K accounts that your company offers can also be a smart choice.
Whatever it is, you can start investing, no matter what part of life you are in.
4. Credit Cards are Bad
Another common money myth is that credit cards can actually be a great tool for your financial health, but only when used correctly. Understanding how to do this requires understanding how credit cards work.
Credit card companies give you a certain amount of money you can borrow which you have to pay back each month or else you will have to pay interest. Interest rates on credit cards are usually very high (about 20-24% on average) because they are unsecured loans.
Based on how responsibly you use your credit card, you get a certain credit score. Two of the biggest factors in getting a good score include your payment history (paying your bills on time) and amount owed (how much of your credit amount you are using). The higher the credit score, the greater access you will have to better loan terms. Read here to learn more about credit scores.
Each credit card has a different purpose—some are travel cards, some are rewards cards, and some are specific store credit cards. Make sure you get the kind that you will use the most and therefore get the most rewards from. Getting rewards on your purchases can be a great way to save money!
Each person uses their credit card a little differently than the next. It is recommended that you make a plan for how you are going to use your credit card in a responsible way.
5. Paying the Minimum Balance on Your Credit Card is Fine
Speaking of credit cards, only paying the minimum balance each month can be a dangerous way to use your credit card.
While paying the minimum balance means your account is in good standing and you don’t have to pay any late fees, it does mean going into debt. This is because only paying the minimum means you start accruing interest for everyday after you pay that balance, and as said above, it can be a very high interest rate.
Paying the minimum balance each month will help your credit score and damage it at the same time. This is because you will be paying your bill on time, but you will be utilizing significantly more than 30% of your credit line if you are still buying things with it. The damage will likely affect your credit score more than paying it on time will.
Try to avoid paying the minimum balance by making a plan each month for what you will use your credit card for and if you will be able to cover those expenses with the income you get. Going into debt when it could be avoided can negatively impact your future.
6. You Can’t Have Accounts with Multiple Financial Institutions
Many people believe that the bank account their parents opened for them 15 years ago is the bank they have to be with for the rest of their life. However, this is not true. Lets debunk this common money myth.
Different banks and credit unions have different things to offer. You may love the savings rate at one bank and the checking account benefits at another (for example, UCCU’s Elevated Checking account).
Benefits of banking at multiple financial institutions include diversification, a wider access to more benefits, a broad network of ATMs and branches, and more. Read here to learn more about this strategy.
Hopefully, debunking these money myths has taught you something you didn’t know before. In our ever-changing digital age, it can be hard to know who to trust. When you come across some financial advice, do additional research and learn what the best option is for you.
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