It shouldn’t be surprising that people tend to get the wrong end of the stick financially from time to time. The rules can seem complicated and sometimes convoluted. This leads to misunderstandings, mistakes, and bad advice. But it’s time to clear up some of the misconceptions or bad habits you might have picked up over the years. Let’s right some financial wrongs and shine the truth on some financial falsehoods.
No need for a budget
If you are at all financially savvy then you might be biting your fingernails just by reading those five words. But the truth is that a lot of people come out of college with the belief that they don’t have enough expenses or responsibilities to warrant setting a budget. They make the mistake that budgets are about ensuring they spend money that’s safe to spend. In reality, budgets are about finding extra cash before you start spending. By paying yourself first, you ensure you have some money to contribute to long-term goals rather than putting yourself at risk of spending all your income without setting any aside.
Earn to invest
That goes hand-in-hand with the common misconception that if you want to start investing and start those long-term plans, you should focus on earning more, first. The truth is that the earlier you start working towards retirement and other long-term plans, the sooner you will meet them. That’s true even if you can only contribute a few dollars a day. In fact, if the average person were to save $7 a day with the assumption that they would see 7% interest, they could be a millionaire by the time they’re 65. The sooner you start investing whatever you can, the better.
Debt and credit are monsters to be feared
Lots of people struggle with debt and with mishandling their credit. Credit cards, in particular, can be a weakness for many. However, so long as you have an ongoing debt management strategy, it can actually be used to your advantage. Making use of credit cards and other loans that you can reliably pay back Is good for your credit in the long-term. But for big expenses, debt should only be taken when it’s an expense that pays for itself in the long-term. Investments such as assets like homes or a business loan are what you should really be using your credit for.
Get out loans as soon as possible
If you care about your credit health then you might think that clearing yourself of any potential for debt might be the best option. To that end, many people will pay off any existing loans as quickly as possible. However, that’s just one of the credit repair mistakes people regularly fall into. To your creditors, that is just as much a breach of contract and can actually end up harming your credit score. The key is to only make agreements you can reasonably assure you can stick to in the long-term.
This has been an idea of how easily misconceptions are spread and how it is always in your best interest to find the argument that challenges your preconceived notions. Don’t take it as gospel, however. Find the source that disagrees if it exists. Question everything.