7 Money Myths You Need to Stop Believing Right Now
Cash is not king and renting is not evil
All you wanted to do was ask Aunt Sheila about your 401(k). Next thing you know, she’s going on and on with financial opinions that seem as dated as her 1998 Volkswagen"New Beetle."
Here, seven money myths you can--and should--ignore. (Sorry, Aunt Sheila.)
Myth: All Debts Should Be Paid Off Before You Save
Sure, high-interest credit cards are the worst, but so is finding yourself without any cash in savings should you suddenly lose your job. Think about it: If you don’t have an emergency fund, how will you ever break the debt cycle? (Paying off credit cards without having money set aside means you run the risk of reverting back to plastic just to pay for unanticipated expenses.) Instead, it’s better to regularly pay off debt while socking away a reasonable amount in savings (say, $5K). Then, after you reach your savings goal, you can double down on the rest of your debt. Also, FYI, carrying debt isn’t always bad. If you make regular payments, it shows creditors you’re financially responsible, which can help you secure loans, like a mortgage, down the road.
Myth: Renting Is Like Throwing Money Away
Not necessarily. In a lot of ways, you’re saving money because you don’t have to shell out for annoying (and costly) expenses like repairs, landscaping, snow removal, heat and hot water--and sometimes you even get free access to the building’s gym. Besides, just because you own a home, a profit isn’t guaranteed should you suddenly have to sell.
Myth: Paying with Cash Is Better Than Paying with Plastic
That’s only true if you can’t get a grip on your debt. Making purchases via credit card is often the smarter way to go since it gives you the chance to review all of your purchases after the fact. Even better, credit-card purchases typically offer security (like the ability to dispute charges), not to mention cash-back rewards, airline miles and so on.
Myth: Canceling a Credit Card Helps Your Credit Score
Nope. Your credit score actually takes a small hit every time you cancel a card (and a large hit if you do a bunch at once) since it affects your overall available credit and utilization rate, two major factors when it comes to calculating your score. A better plan: Keep the zeroed-out card open and unused (permission granted to keep it in a block of ice in your freezer) or limit yourself to canceling one card a year (specifically, the cards with annual fees).
Myth: You Should Only Invest in What You Know
It depends on how you take this advice. If investing in what you know means sinking cash into companies with names you recognize, or worse, companies that are within your industry, that’s a bad move. (It means ignoring the twists and turns of the broader market.) If it means investing in a portfolio of stocks that you’ve researched meticulously, by all means, carry on.
Myth: Removing Black Marks from Your Credit Report Is Easy
Sure, a clean slate can be yours--you just have to wait seven years. Yep, that’s the amount of time negative information remains on your account, according to FICO. The only exception to the rule is inaccurate credit information (you should follow these steps to get a dispute cleared up). The good news? A collection that is five years old will impact your FICO score less than a bad move made five months ago.
Myth: Your Kids Should Be Your Top Financial Priority
As far as providing clothing, food and a roof over their cute little heads, yes, that’s on you. But if you have to choose between saving for them to go to college or your own retirement, invest in your retirement all the way. Look at it this way: You can get loans for college. But there are no loans for spending your golden years in Boca Raton.