When it comes to managing finances, most Americans are competent at the basics: setting up and following a budget, and putting aside some money each month towards savings or retirement. However, true financial savvy requires more than just being able to handle your monthly cash flow; it requires a deeper understanding of the different ways that you can build your net worth.
Unfortunately, many people rely on financial myths when it comes to making decisions about saving, investing, making big purchases and planning for the future. Many of these myths are so deeply entrenched in our culture that it is easy to see why people believe them to be true. But in reality, these myths can be damaging to your overall financial health — which is why it is so important that you understand the truth about them.
Here are seven personal finance myths that you need to understand — so that you can stop believing in them.
Without a doubt, many people get into trouble with credit cards; it can be far too easy to rack up debt with a quick swipe for people with poor money management skills or an inability to budget. But for many Americans, credit cards are a useful financial tool that can help you build credit and earn rewards or cash back.
Having a good credit score is fundamental to being able to make major purchases — like a house or a car — and obtaining a good interest rate. Credit cards can be a great way to build credit, provided that you use them responsibly. Never charge more than you can afford to pay back, and be sure to make regular, on-time monthly payments. Try to avoid carrying a balance on your cards; it does not help your credit score, and it can end up costing you a lot of money in interest charges over time.
While having a healthy savings account and cash on hand to pay for what you need is important, cash is not always “king.” There are some disadvantages to paying with cash. If the inflation rate is positive, paying with cash means that you are likely losing purchasing power. And by paying cash, especially for big ticket items, you will losing out on the opportunity to earn rewards through a credit card program. For example, if you have a credit card that gives cash back for purchase, you could ultimately end up paying less for an item by charging it, getting the rewards, and paying off the balance in full when the statement arrives.
Beyond the potential benefits that using credit can bring, there is another advantage to using a credit card over paying cash in your daily life. A monthly credit card statement is a good snapshot of your spending habits. Using a credit card allows you to analyze your spending each month, and potentially find ways to reduce your spending.
I Don’t Make Enough to Save
It is far easier to save money if you are making a substantial salary. But even if you are in a lower income bracket, you can probably still put aside money each month. The key is utilizing a budget system to understand your cash flow. A 2013 poll revealed that approximately 33 percent of American households maintained a monthly budget. Without a budget in place, you will not be able to see where your money is going — and how you can put money into savings each month, even if it is just a small amount. Regardless of what your salary is, taking the time to set and stick to a budget will help you save more money.
In the past, the stock market was largely a tool for the wealthy. Having a stock broker who could buy and sell shares required money, and so investing in the stock market was out of reach for most Americans. But in 2016, we have greater access to information and an ability to buy, sell and trade stocks with just a click of a button. It is now easier than ever to invest in the stock market, with lower commission costs, smaller minimum deposits and even services that permit automatic contributions. While you should still do your research and make sure that you understand how the market works before investing, it is entirely possible for average Americans to invest in the stock market at any income level.
Being a homeowner is the American dream. And for many people, buying a house can be a good investment, particularly in certain markets. But purchasing a house as a primary residence isn’t always a great investment, as in most areas, home prices are relatively stagnant. Purchasing a home does not always help you to build real wealth, as compared to other types of investments. There are many situations where it may make more sense to rent and to invest your money in other ways. Before purchasing a home, carefully consider whether the investment makes sense for you — especially if you do not plan to stay in the house long-term.
This myth has been a popular part of American folklore for almost 300 years, after it was first published by Benjamin Franklin in Poor Richard’s Almanack. While saving money is ultimately a good thing, it is not the same thing as earning money — especially if you do not save or invest the money in the right way. If you put your money into a savings account, you will probably lose money over time due to interest rates that are lower than the rate of inflation. Saving money is important, but only if you save it wisely. Examine different options for saving money, such as retirement accounts, mutual funds and the stock market, so that you can actually earn money by putting it aside.
There is a pervasive myth in American culture that wills and other types of estate planning is only for the very wealthy. That is why almost half of all Americans between 55 and 65 do not have wills. However, a will is an important tool for everyone, no matter what their financial status is. Having a will can help to ensure that whatever assets you leave behind are distributed in the manner that you desire — and it will prevent your property from going to the state if you do not have a spouse or children. A will can be relatively inexpensive to make, particularly if your needs are simple and you utilize a do-it-yourself website. Everyone should have a will, if only to detail your final wishes, and should prioritize making a will as part of their overall financial planning.
©2016
Original article and pictures take lendedu.com site
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