When it comes to managing your finances, it’s easy to just take on what you hear from those around you. But, unfortunately, there is a lot that is said on the subject by many people that is at best unhelpful and at worst just plain wrong.
Even some so-called experts repeat some of this misinformation, which only makes it harder to challenge. That is why some money myths are pervasive, and persistent.
Here are five money myths that deserve to be dispelled.
- Buying a house is always better than renting: The common criticism for renting is that you shouldn’t pay someone else’s bond. Of course it is true that owning an appreciating asset and having the security of your own home can be highly beneficial.
But owning a home comes with many additional costs and considerations that can be a significant burden. Particularly for someone at the start of a career who needs flexibility more than stability, renting is often cheaper and more efficient.
Don’t buy property just because it’s the next step on some perceived journey to full adulthood. It is something that should only be done with proper consideration and after comparing it with the alternatives. - Your credit card can be used as an emergency fund: Having access to a bit of credit may be useful in a tight spot, but if you lose your job you can’t pay your rent or your home loan off your credit card. Don’t see your credit card limit as a replacement for an emergency fund, because in a worst-case scenario it won’t be of much use.
Having a proper emergency fund is the only way to get through a real hard time. You certainly don’t want to be getting into more debt when you have lost your income. - You don’t need life insurance when you’re young: Partly, this is true. If you don’t have debt or dependents, you may well not need pure life cover.
But remember that your biggest asset is your own ability to earn an income. If you were to fall seriously ill or suffer a disabling injury and were unable to work, what would you do? Disability cover, critical illness insurance and income protection are vital at any age.
While you are young and healthy you are also going to be able to access cover at the lowest cost. If you wait until after your health changes, it is going to be more expensive, and you may not be able to get cover at all. - I don’t have enough money to speak to a financial advisor: Unfortunately, some financial advisors have perpetuated this myth themselves by only wanting to work with clients who have a certain amount to invest. But financial planning is not about how much money you have now. It’s about setting a path for your future.
The earlier you get professional help, the more certain you can be that you are on the right journey. - Planning for retirement is only about money: Having enough money to ensure that you have an income once you stop working is of course vital. But a proper retirement plan is about far more than just how much you have saved.
When you think about your life after you stop working, what is really critical is how you expect to spend your time. What kind of life do you need an income for?
You also need to think carefully about how ageing will affect your health, and where you be living in the last part of your life. And don’t neglect the importance of involving your family in this discussion so that everyone knows and appreciates your wishes.
There’s no substitute for professional advice here!
Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.
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