Top 7 Biggest Money Saving Myths You Need To Knowadmin
Saving money is a skill, something anyone can learn how to do. It’s true that some people save more instinctually than others. Some of us have been squirreling away loose change since we were small children. Some are magnanimous and always buying sodas for friends. But setting money aside for specific savings goals is something anyone can do if you teach yourself the habit.
Unfortunately, bad savings advice can stand in the way of effectively learning to save. And there is a lot of bad savings advice out there. From old folk-wisdom to outright misconceptions, we’re here to debunk the top seven most harmful money-saving myths.
Myth #1: Renting is Always Financially Better than Owning
At the top of our list is the most-often repeated misconception about household finances: Renting vs owning. We’ve all heard a million times that buying a house (fast!) as a young person is important because all that rental money is being “wasted”. What they don’t tell you is how much it costs to be a homeowner. Homeowners pay mortgage, property taxes, utilities, maintenance, and major repairs. This can add up to more than you’re paying in rent and utilities for an even nicer rental home. Only in the right market with the right purchase do you actually lower your housing costs after buying.
In addition, young people move around for work and most explore before choosing their final city to settle down in. Buying a house ties you down and significantly raises the cost and hassle of changing locations if your career takes you elsewhere. When it comes to saving money, you may be better off chasing the best jobs, continuing to rent, and socking away the extra until conditions are right for you to buy a permanent home in a good market.
Myth #2: Money is Too Tight to Save Anything
This myth is based more strongly on human instinct. When money is tight, we feel it’s necessary to budget every last penny. And maybe some months that is true. But people who save just a little each month will slowly accumulate savings while spending to the max every month doesn’t leave you with this slow-growing nest egg. When money seems truly tight, put in as little as $5 into your savings account that month. And when you have more breathing room, try trade a little splurging for a little extra saving.
If you want to have a savings account, always save a little, even when money is tight. Then you’ll have a small savings account for emergencies or a stress-relieving treat for saving with diligence.
Myth #3: Too Young to Think About Retirement
We often hear young people express that there’s a “too soon” to think about retirement. But contemplate this: Retirement is a number. It’s the amount of money you need to maintain a work-free lifestyle until the end of your life. Some people make it their goal to achieve early retirement – enough money accumulated to take it easy for life. Some plan for ‘periodic retirements’ or long leisurely vacations between years of productive work.
In other words, you’re never too young to think about retirement, save for retirement, or even to retire! The better your savings habits and greater your ambition to earn, the closer retirement is for you. You don’t have to be old to get there, but you should plan for non-age-limited savings accounts instead of typical retirement accounts if you plan to retire early.
Myth #4: The Credit Card is Your Emergency Fund
Many people grow up with the misconception that credit cards are the same as an emergency fund. This isn’t exactly true, but it can appear to be true if you don’t have the whole picture.
Credit cards must be paid off. When you spend on them, this is your budget being spent – just not always in the ‘right’ order. Think of credit cards like a bungee rope. You can extend beyond your current checking account for emergency spending – like booking a hotel room when the house floods – but that cost will still need to be paid from the next several paychecks.
The credit card makes sure you can pay for emergencies when you don’t have the savings ready. But then paying that emergency expense soaks up any extra funds until the cost is covered. Think of credit like a bungee cord, it can stretch out your spending ability in a pinch, but it always comes back.
Myth #5: Credit Cards Should Be Avoided, They Put You In Debt
The opposite opinion is also commonly shared by well-meaning relatives and community elders. Credit cards do create a type of debt, but used properly they are a rolling non-harmful debt. Credit cards often come with perks and rewards for using them like cashback (which effectively lowers the price of everything) and partnership discounts on certain types of spending like groceries or entertainment.
Paying in cash is no longer always the best approach. The economy adapts as time passes. Now, there are often partnered deals with specific credit card providers or deals offered when taking a loan with a specific lender.
One common and safe method of credit card use is to buy your groceries on a card with rewards, then pay off that grocery budget within the same month. As long as you maintain a balanced monthly budget, you can effectively use a credit card, gain the rewards, and completely avoid debt.
Credit cards are sometimes the best way to buy things online, and you can often use a credit card to make big purchases like vacation travel, then balance the cost from your savings. This keeps your finances tidy and provides you the identity and charge protections offered by the credit card companies.
Myth #6: You Have to be Rich to Invest
There is a common misconception that only the rich have the money to invest, and to make money off their investments. This actually isn’t true at all. Small investments made early have a good potential for generating income in the future. There are also several ways to save money in an investment-backed fund that generates something called ‘compound interest’.
Compound interest generates a small amount of money – based on how much you have in the account. When money is added due to interest, the next interest generated is based on that slightly larger amount. Over time, even a small savings in a compound-interest account can become a real source of income later in your life. Especially if you start young and let that account build up.
Whether you build a small stock portfolio from affordable stocks or start an investment-backed savings account, you don’t have to be rich to start benefiting from investments.
Myth #7: Never Take Debt to Save Money
The financial world is complex. The relationship between debt and savings isn’t always clear-cut. Sometimes, taking or holding debt to save money is the right decision. For example, buying a home and paying the mortgage at-pace while building a savings account instead of trying to pay the house off with every scrap of spare money you earn. The first option creates a stable and financially sound lifestyle while the second may not be available depending on your lender terms.
You might get a better deal on a car with a loan than buying in cash. You can also take on a large student or medical debt to pay off slowly while the rest of your budget is focused on building a higher-earning lifestyle and career.
Saving money means making smart decisions about how you spend and always putting some money aside so your savings grows every month. While there are many money-saving myths floating around, the truth is also easy to find when you consult with experienced financial professionals.
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