People have their individual perception about money. Hence, it’s no surprise to have myths in abundance around us. These myths can be perpetuated by anyone - parents, relatives, friends, and even the financial professionals you’d look up to for guidance.
What are they and how do you get past them successfully?
Money Myth #1: Saving money is impossible without paying off student loan debt.
Student loan debt is a major financial burden for the graduates, particularly for the millennials. An analysis conducted by the Institute for College Access and Success revealed that average student loan debt undergraduates had in 2014 were almost $30,000.
Unfortunately, the rate of joblessness as of September 2014 was the highest amongst the millennials at 6.2%. As a result, Gen Y has opted to pay off their college debt first than fulfilling their saving needs.
However, experts suggest that you must have an emergency fund to cope with medical emergencies or a sudden car repair. Doing so will keep further indebtedness at bay.
Money Myth #2: Job hopping doesn’t have any pitfalls.
Millennials are always on the lookout for the best opportunity to accelerate their career advancement, and so, job hopping has become their second nature.
They seek handsome compensation, status, and prestige from their jobs, besides asking for considerable vacationing days and a happening personal life. Salaries and perks of such stature don’t come by so easy, as these golden-ticket job packages are rarely offered. Still, young adults in their 20s hop around praying to land their dream job somewhere, somehow.
However, that of fickle mindedness does cost the millennials thousands of dollars in income in the long run. This loss is specifically observed when their 401(k) plans are studied.Mostly, employers offer 401(k) plans and a lot of them match their employee's contribution to such plans. Moreover, some of them vest the ownership of these plans to their employees immediately.
But, employees can’t own their all the contributions, before completing at least 3-5 years in a particular job. Therefore, frequent job-hopping leads to the drainage of a lot of precious dollars.
Money Myth #3: Investments are just for the wealthy.
To plunge into investments, you don’t require a million dollars. All you’ll need is a few dollars along with a dose of grit, intelligence, and a desire to make it.
Add to them, a certain amount of dollars every month for the rest of your career, experts argue, that you won’t be left high and dry for money. Investment isn’t complicated; you just need to start now!
Money Myth #4: I can plan for my retirement later.
Contributions to both 401(k) and Individual Retirement Accounts (IRA) are tax deductibles and can translate into hundreds of dollars in savings.
So, with pensions gone, you can’t simply rely on your social security benefits. With our average life span increasing, it creates more demand for more years of income to replace and bear more medical bills.
Plan to deal with your retirement now anyway. It will make a huge difference during your golden years.
Have a look at - How to not let debt delay or ruin your retirement
Money Myth #5: Debts are all bad.
Debt is neither a free pass to spend on luxuries nor a set of shackles to bear. Rather it's a tool to provide leverage. It’s dangerous, but if handled carefully, can make the job of creating wealth easy.
- Mortgage loan - Enables home ownership at a moderate rate of interest in the long-term.
- Small business loan - Enables people to float a start-up of their and to create new sources of income for themselves as well as for others.
- Large business loan - Enables larger corporation to expand their operation while they get to preserve their cash to run their existing businesses.
Post-recession, it’s guaranteed to be wary of debt. But, some savvy people are using credits to grow their businesses, purchase real estate assets or simply making their money work harder for them. You can adopt the same strategy. Simply pay off your credit card balances and start investing, prior to repaying your mortgage and student loans prematurely.
Also read - Is your debt killing you? What can you do about it?
Money Myth #6: Debit cards are better than credit cards.
After having suffered to pay back your huge credit card balances, it’d seem wiser to stick to debit cards. However, your debit cards too pose some serious threats to financial security. Hence, it’s advisable that you use credit cards (but with caution) and pay off the balances on time.
Many credit cards provide better purchase and fraud protection, and rewards as compared to debit cards. Credit cards can improve your credit score, by increasing your credit history. Having good credit score will allow you to qualify for a loan faster and at a better rate of interests.
Moreover, during emergencies, you may have to pull out more than what your debit card permits and charge you hefty overdraft fees. However, interest paid on the credit card balances are comparatively lower. But, make sure you pay off the borrowed sum quickly.
Check out - Credit card fraud: What you must know about it
Money Myth #7: Austere measures and lesser expenses are sure-fire to get out of debt.
The reality is when you’re working to get out of debt, you’ll need more income and a reasonable budget to achieve your goal. When you turn your focus towards earning more, you can get some much needed financial stability and come out of your debt mess with increased income as an added advantage.
The list could go on. But, I want you to share some of the most challenging myths centering around money you as a young adult would want to break. Put words to your thoughts and let us gain some valuable insights from your experience in busting some of your money myths.
