When it comes to making smart money decisions, it’s important to base your choices on facts instead of fiction. However, if the difference is not clear to you, some financial myths could affect your personal finances.
As part of our "M is for Money" content series, here are six money myths explained:
Myth #1: I can’t start saving until I make more money.
Fact: If you generate income, you should be able to start saving. Some people may have different financial obligations than others, but starting small is still a start. The sooner you start saving, the better chance you have of making it a habit.
Tip: Look for ways to save money in your current budget, such as taking your lunch to work and buying store-brand products. For additional information, check out these tips on how to make your savings grow.
Myth #2: The least expensive option is always the smartest purchase.
Fact: While this may be true in some cases, this principle does not apply to all purchases. For example, if you buy the least expensive washing machine available, it might also be the lowest quality. The money you save on the initial purchase may not be worth the price of replacing the machine if it breaks down in a few years. If you had paid more for a higher-grade model the first time, it may have lasted longer and been a smarter investment.
Tip: Do your research on all available options when making a purchase. One way to compare a variety of options online is to use a comparison shopping engine (CSE). After you type in a product, the CSE can provide pricing, reviews and shipping information to help you make an informed decision.
Myth #3: I don’t need an emergency fund because I have credit cards.
Fact: An emergency fund is a cash reserve set aside for unexpected situations that arise such as a sudden loss of income or large expenses.1 The purpose of an emergency fund is to cover expenses during tough financial times without going into debt. If you use your credit cards to pay for these expenses and don’t pay your balance in full by the due date, you could be charged interest on the unpaid balance.2
Tip: To help give yourself more financial security, try to build an emergency fund that could pay for a major car repair or household appliance. Some experts say that three months’ worth of take-home pay is a good benchmark but not everyone can afford to save that amount.3 If you need help getting started, here’s some advice on how to build an emergency fund.
Myth #4: Only wealthy people need financial advisors.
Fact: Financial planning can benefit anyone who wants to organize their finances, regardless of net worth or income. If you have money goals but don’t have the time or training to build a plan for yourself, a financial advisor could help you create and implement a plan. Although some advisors may target clients with more wealth, many advisors work with a large variety of clients.
Tip: If you’re considering a financial advisor, do some research on the available professionals in your area. Some advisors may offer a free consultation or charge their services on an hourly basis for certain clients. As you start your search, consider these tips on what to look for in a financial advisor.
Myth #5: Always buy in bulk.
Fact: Buying in bulk can be useful for some products, but not all. For example, non-perishable items such as toilet paper and canned goods can be bought in large amounts and used as needed. However, if you buy perishable items in bulk and don’t use them by their expiration date, you may end up throwing most of them away. Some stores that sell in bulk may also charge an annual membership fee, which could offset the money you save.
Tip: If you’re going to buy in bulk, be aware of how you plan to use the items. Also, be mindful of how much space will be required to store the goods. When the proper preparations are made, buying in bulk can be a great way to save money on certain items.
Myth #6: Planning for the future is all about retirement.
Fact: Although retirement could be your biggest long-term investment, you may have other interests that require a financial strategy. For instance, do you have children or plan to have children? You may want to save for their education. Do you have personal aspirations such as opening your own business or buying a larger home? These investments may require a large down payment. No matter what future endeavors you have in mind, it’s important to think through all your potential financial responsibilities.
Tip: Before you direct all of your money into retirement, take time to analyze your personal and professional goals or consult a professional. It may help you figure out how much money to designate for each plan and still retire comfortably.
Follow the truth
Whether they’re too good to be true or an unfounded claim, some money myths can send you down the wrong path. Hopefully we cleared the air and provided some tips to help you make smart decisions with your finances.
1. BusinessDictionary. “Emergency fund.” BusinessDictionary.com.
http://www.businessdictionary.com/definition/emergency-fund.html (accessed April 25, 2017).
2. Irby, LaToya. “How Your Card Balance Affects Your Credit Score.” TheBalance.com.
https://www.thebalance.com/balance-affects-credit-score-960446 (accessed April 24, 2017).
3. Chang, Julia. “The 3-6-9 Guideline for Emergency Savings.” LearnVest.com. https://www.learnvest.com/2016/04/3-6-9-rule-of-emergency-savings (accessed April 24, 2017).
The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinion or position of OneMain. The information in this article is provided for education and informational purposes only, without any express or implied warranty of any kind, including warranties of accuracy, completeness or fitness for any particular purpose. The information in this article is not intended to be and does not constitute financial, legal or any other advice. The information in this article is general in nature and is not specific to you the user or anyone else. The author was compensated by OneMain for this post.