We are taught a lot of things throughout our lives. We're taught how to use trigonometry to calculate attributes of a triangle, how many wives Henry VIII had, and the boiling point of water. While the latter might be partially useful in life, it's difficult to find a day-to-day use for the others. Far more practical skills that we need as adults include how to change the wiper blades on our car, how to wash our clothes and how to manage our money. Somehow, we are just expected to know what to do with these things, and it means that some people end up making the wrong decisions, particularly when it comes to money.
There are many myths that surround personal finances and taxation, from the understandable to the bizarre. Some come from centuries of storytelling and custom, like you can find a pot of gold at the end of a rainbow. Others come from hype and the fear of missing out, like the frenzy that surrounded the Bitcoin boom in late 2017.
One of the biggest ways to fight myths is to never believe something you read or hear if it is not from a source that you trust. Take a skeptical approach and do some research of your own to check whether the information is true.
Technology can help with this. It has changed the way we live our lives in many areas. We can use it to communicate with our friends and family through social media; we can manage our finances through online banking websites and mobile apps; and we can play all kinds of games from blockbuster titles like Grand Theft Auto, where players can customise their own car, to themed online slots games like Ted, which contains references to the movie like the Thunder Buddies Bonus symbols. It is also an important tool in dispelling financial myths.
Using resources like this website can be a great way to find ways to stay ahead of the game and dispel myths, when it comes to managing finances.
So what are some of the most prolific myths about finance? Let’s take a look.
All Debt is Bad
The news talks a lot about government debt, national debt, personal credit, student loans, and how they are all increasing in size. Anyone listening to this could quite easily come to the conclusion that any type of debt must be avoided at all cost, except this is not correct.
The Money Saving Expert himself, Martin Lewis, regularly proclaims “debt is not bad, only bad debt is bad”. Debt that is unaffordable should be avoided, but sensible debt doesn’t need to be.
Some examples where personal debt could be useful:
- Buying a house with a mortgage that has a sensible interest rate
- Spreading the cost of an expensive purchase by using a 0% interest credit card or store loan
- A British student loan issued by the Student Loans Company that has repayments calculated based on income – other countries, and private loans may, not be so attractive
- Borrowing at a sensible interest rate to fund expansion of a business, provided that the costs are calculated and the expansion plans are prudent
I’m Not Rich Enough to Invest
If you don’t make your money work for you, you will always be working for your money. Investing is not an activity exclusive to the wealthy, you can begin with just a small amount of money.
Unless you have a large chunk of cash already saved, the best way to invest is to channel small amounts of money to be invested each month. Unless you can dedicate many hours to researching the best companies and then staying on top of their financial results, you are better off investing in Exchange Traded Funds (ETFs) which track leading market indices like the FTSE 100 or the Dow Jones Industrial Average.
Remember you should always seek independent financial advice before committing any funds, but this approach is advocated by the folks at The Motley Fool and even Warren Buffet.
I Need a Perfect Credit Score
What is the point of having a great credit score if you don’t try to use it? Credit scores are tools for quantifying the quality of your credit history. Numbers vary between each credit rating agency, but the premise is always the same: if you have a higher number, you have a better credit rating.
They have become popular in recent years, as people begin to access their credit reports online through companies like Experian. Many have since fallen into the trap of trying to have a perfect credit score.
But what is the point of having a perfect credit score if you don’t use it to help you get the best deals? Having a credit score of 999 and then not using it is like having a pair of pristine trainers and then never going outside for a run. This is not to say that you should use your credit score to apply for credit products that you don’t need, but it does mean that you should use it to take advantage of offers like cashback credit cards and better mortgage rates.
Financial myths exist everywhere. They hold us back from making the most of our finances, and cause us to behave in ways that go against our interests. The good news is that these myths are easy to dispel, and when you do, you’ll unleash your true financial potential.