Start 2021 right, by letting go of these six personal finance myths that could be holding you back.
It’s scary to see how little the average person knows about personal finance. You’d expect more people to know when considering how important it is.
It is estimated that around fifty percent of people struggle with financial literacy, and it’s even worse when we start looking atyounger demographics. The sad thing is that many of the mistakes we make come from myths that have been passed down by people who themselves lacked financial literacy, and these tend to spread because they often make sense. But in reality, many of them might be pushing you back andhurting your finances.
Let’s take a look at a few personal finance myths you need to let go of in 2021.
Mobile Phone Contracts Are Always Better Than Prepaid:
There are so many things wrong with this. There are still a lot of people who think prepaid mobile plans are always more expensive than contracts, but that’s simply not true.
For one, with a prepaid, you can come in with whatever phone you wish while fixed plans will try to stick you with an overpriced phone that you’ll have to pay for throughout your contract.
Not only that, but the phone might become outdated before your contract ends, and you might have to buy another one. Also, you’ll be stuck at your initial rate for the whole time,while a prepaid plan will give you much more flexibility.
So, if you want to keep your telecom costs low this year, we suggest you try a prepaid plan. Providers like Lebara have great deals that offer plenty of data for less than $30.
They offer SIM-only deals, which means that you can use any unlocked phone that is compatible withtheir network. You’ll also be able to switch between any of their deals whenever you wantwith no questions asked.
Buying is Always Better than Renting:
There is also this common belief you should own everything all the time if you can. This goes for both property and vehicles. However, buying is not always the better option.
For example, when you lease a vehicle, you don’t have to worry about what its residual value will be at the end of the lease. It might not even be saleable by the time you’re done with it. Markets change and some vehicles that were once very popular can quickly fall out of favour with customers.
Another great thing about leasing a vehicle is predictability. You won’t have to worry about one of the major components breaking down. And, while you won’t have a vehicle at the end, the monthly cash flow hit will be much less severe. Some people decide to use the immediate monthly savings on a better car, while others will stick to a modest vehicle.
Leasing is also a good option if you want to save for a better vehicle, but still want to drive arecent vehicle in the meanwhile.
Buying a home is not always better than renting either. Again, when you rent, your monthly costs are predictable. With a house, you never know when you might have to pay for a major repair. Not everyone can afford a house either. You have to assess your ability tocover upfront costs like down payments and legal fees.
You should also think twice if your credit isn’t the best. You will end up getting bad deals on interest rates. A wise decision would be to work on building your credit first. Most negative items on your report will disappear after six years, so it would be a good idea to rebuild your credit during that period.
Showing that you’re responsible will allow you to get a much better deal and variety on mortgages. It will also allow you to look at better houses.
Credit Card Companies Love when You Pay the Minimum:
This is a rather strange one. There’s a myth that credit card companies will favour people who always pay the minimum every month because they’re the ones who make them the most profit. But that couldn’t be further from the truth. In reality, what will affect your credit score is your credit utilisation ratio.
This is the amount of money you owe vs your total credit limit. The goal here is to keep your utilisation as low as possible.
The trick is that if you have many cards, pay them off one by one and do notclose them. Keeping them open will benefit your ratio. You have to make sure that you have the self-control necessary.
Repairing Your Credit Score is a Scam:
Far from it. You’d be surprised at the kinds of things that can be done to improve your creditscore. Just doing something as simple as getting on the electoral register could instantly boost your credit.
While there are some things you can do on your own, there are some cases where a credit repair service may help. They might help you get a clearer view of your credit situation.
You might find out that it’s notas bad as you thought. They may also be able to speak with your creditors and see if they can work out a deal. They will also make sure that changes are reflected on your creditreport.
Another thing you could do to improve your credit is getting a secured credit card. Note that we didn’t say prepaid. Secured credit cards are back by a collateral sum you will have to deposit.
This sum will then serve as the limit on the card. The difference between these and rechargeable cards is that they will report activity to credit bureaus. This means that youwill be able to increase your credit if you use it responsibly.
There’s No Point in Saving for Retirement Before the Age of 40:
It’s hard to understand why more is not being done to teach young people about the power of compound interest. When it comes to saving for retirement, the longer you wait, the more you’ll have to save to get the same results.
For instance, if you’re 25 and put $800 in a money market account and only add $50 permonth with an 8% annual return compounded monthly, you will have $193,969.10 by the ageof 65.
If you waited only ten years more, this would dwindle to $83,266.56. This means that you need to start as soon as you earn a regular income. You can keep your investment to a modest amount you’ll be able to handle. This will start adding up, and the sooner you start, the easier it will be.
I Don’t Make Enough to Save Money:
That’s nearly impossible. If you earn a steady income, then you can probably save. It doesn’t have to be much. Even saving 10% of what you earn weekly or bi-weekly can quickly addup.
Even if you make $20,000 per year, that’s $2,000 that you get to keep at the end of theyear. That would make for great seed money to invest in a money market account and let compound interest do its magic. These are all common personal finance myths that are as persuasive as they’re dangerous.
Make sure that you learn as much about the subject and second guess any opinion not coming from a professional