Money myths can really steer you in the wrong direction, especially with a struggling economy. While often coming from well-meaning friends or even paid advisors, it’s important to look at any piece of money advice you get and see how it fits in your life before jumping in. You’re the only person who really knows what’s best for you and your money. Here’s another way to look at some of the most common money myths:
Your Budget Has to Be Strict
Strict budgeting can give you control over your spending so you can save more, if you have the personality for it. The truth is that, just as with dieting, sticking too much to a strict plan can cause splurging when the pressure becomes overwhelming. Your budget should not be so strict that it makes you miserable.
Instead, set a budget where the essential expenses are fixed, but you still have wiggle room for an impulse buy or just to treat yourself once in a while. It’s true that a budget is a must, but how strict you make it should be based on your lifestyle and emotional needs.
0 Percent Interest is the Way to Go
Sounds like a great deal, right. If you pay no interest, it’s like getting free use of the money. But this is only true under certain circumstance. You may get a zero percent offer from a store credit card, but if you don’t pay it off within the time allowed, you face high interest charges back dated to the purchase date.
No interest car loans are no picnic either. They’ve already calculated the money they need to make on your loan into the purchase price. You’re just paying all the interest in the car’s purchase price instead of in monthly payments. Don’t be fooled.
Keep An Emergency Fund for 6 Months of Living Expenses
Yes, it’s smart to set money aside for emergencies, but everyone has a different situation and arbitrarily setting aside 6 months expenses when you have other high interest payments pending may not be a smart move. Slowly building your savings while paying down high interest expenses.
You Need Money to Make Money Investing
Some believe you can’t begin investing until you have a good chunk of money to start. But there are many ways to invest with very little starting capital. DRIP investing is a way to buy just a few shares in a company and reinvest the dividends a little at a time to build wealth slowly over time.
If your employer offers a 401(k), it’s truly the best way to invest whatever money you can. If your employer matches contributions, put in the maximum allowed that they will double. It’s free money and a great way to invest even if you don’t have a lot of money to start.
Credit Cards Are Dangerous
While badly used credit cards will put you in a money pinch fast, smartly used cards can actually help you build wealth. Look for credit cards that offer cash-back options and discounts on expenses you have regularly. Use these cards responsibly to build your credit.
Good credit helps you get the most affordable apartment, buy a house, get a job and more. Smart use of credit cards is a great way to build wealth.
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