Financial Advice

7 Money Myths You Need to Ditch

We get most of our financial knowledge from parents and older family members. They pass down ideas like, ‘A penny saved is a penny earned,’ and, ‘The bank is the best place to keep your money.’ What once were solid pieces of advice have become financial myths that are holding you back. Leaving this advice behind can help you on your way to financial success.

1. Banks Are the Best Place to Keep Money
A few decades ago, when your grandparents were in the workforce, savings accounts were a good place to keep your extra money. That is no longer true. Savings accounts have such a low-interest rate that it does not make sense to keep the bulk of your savings there.

The good news is that there any number ways to put your savings to work. IRA’s and other financial instruments are designed to offer a safe way to add to your money. Investing in stocks, if done intelligently, can also be a good place to put your extra cash.

2. Invest In What You Know
It seems obvious that the best place to invest is in a type of business you know something about. If you work in IT, you probably have a good sense of the industry and which companies are likely to do well. Keeping your money in a business sector you’re familiar with can seem like a good idea and feel more secure to you.

The truth is that investing in a wide range of businesses is a safer way to go, and is more likely to offer a good return. Investing in one business sector leaves you vulnerable if the bottom drops out. Investing in a wide range of businesses protects against a drop in any one, and offers a better chance of an increase in value.

3. Buying a Home Is a Good Investment
There are a lot of good reasons to buy a home. Buying a house as a financial investment is probably no longer one of them. Depending on where you buy, the housing market is still recovering from the bubble burst in 2007.

Combine the low value with the expenses involved with buying a home, such as interest on a mortgage and property tax payments, and the return on your investment will probably not be big.

4. Always Pay In Cash
As credit card companies try to find more ways to differentiate themselves from their competitors, and attract new customers, they keep adding benefits and incentives. Using your credit card can mean a big return on reward points, which can turn into flights, hotel stays, and your entire vacation, as well as money back on your balance.

The key is to pay your balance off each month. By doing so, you minimize the amount you owe in interest and paying with the card ends up not costing a whole lot more than paying with cash. If you can manage your rewards correctly, you might end up doing coming out ahead in the deal.

5. A Penny Saved Is A Penny Earned
Saving money is great, and if you can put your savings to work, that’s even better. The truth is, though, your expenses can only be pared down so much. Rent or mortgage payments, food, and insurance all take a big bite out of your budget. Frequently, what gets people into financial trouble is not that they spend too much, but that they simply aren’t earning enough.

The way to be financially successful is often not to save more, but earn more. There are any number of ways to add to your income, from moving to a better paying job to turning hobbies and side projects into earning propositions. While there are lots of reasons to save, you won’t become wealthy simply by collecting pennies.

6. Pay Off All Your Debt As Quickly As Possible
Some debt does nothing but eat up your money. High-interest credit cards and other debt can end up costing you a lot more in the long run. That’s the sort of debt you want to pay off as soon as you can.

Other debt is not as bad, and may work for you in some ways. Student loans and mortgages often have a low-interest rate. And, as long as you stay current, they are a good way to improve your credit score and are also frequently tax deductible. If it is a choice between paying down this sort of debt, and investing money or saving for retirement, you should consider keeping the debt.

7. There’s No Coming Back from Bankruptcy
Bankruptcy will negatively impact your credit, that’s true. However, if you’re filing for bankruptcy chances are your credit was not that great in any case. What bankruptcy does do is allow you to deal with debt so that you’re not constantly struggling to pay your bills. You can start again, improving your credit over time, to build your finances back up for a successful future.

There is a lot of financial advice out there that is just no longer true. Rather than making decisions based on advice from people who may not understand your financial situation, you should look honestly at your finances and make decisions based on what is best for you and your goals. Don’t believe the myths that are holding you back from a successful financial future.

This article by Rick Abelmann first appeared on Abelmann Rollins and was distributed by the Personal Finance Syndication Network.