There’s a lot of misinformation that gets thrown around in the world of personal finance about money. Specifically, there are six common money myths that I want to dispel. They touch on a variety of areas including home ownership, credit scores, stock market investing and more. Here they are:
Myth #1: Buying a home is a guaranteed investment vehicle
Is buying a home always a good investment? If you think so, try telling that to all the people who have upside down mortgages. In case you don’t know, this occurs when the market value of a home falls below the amount owed on the mortgage loan. So as a homeowner, the only options would be to stay in your home until its value rises, which might occur in several or many years, or sell it at a loss.
While it’s true that home values have historically increased by 4%-5% per year, by no means is this a guarantee. Hence, there is a risk.
Myth #2: The price of an item is an indicator of its quality
Whether it’s generic drugs, supermarket brand goods, or even automobiles, it’s been proven that many low-priced items are just as good (and sometimes better) than their big name brand counterparts.
Keep in mind that a lot of national name brands carry higher prices based a lot on their name recognition. Trust me, there is no noticeable quality difference between Clorox bleach and the supermarket brand.
Myth #3: Paying off your credit card balance in total every month could hurt your credit score
I think many people get this one confused because of who it might apply to. If you’re right out of high school or college and want to build a credit history, then it’s good to have your credit file reflect that you have the ability to pay off debts over time. Creditors like to see that, and it can boost your score when there wasn’t much there to begin with.
But once you have a variety of credit lines and your reputation has been established, there’s really no need to go out of your way to pay off credit card balances slowly. So save yourself the extra interest cost and pay off balances as quickly as you want.
Myth #4: Renting a home or apartment is a waste of money
Is buying food to live a waste of money? What about the gasoline you pump into your car and the money you shell out for utilities? Are they wasteful? Of course not.
We all have basic living expenses that are required to survive in this society. And even if you that think buying a home is so much better, just look at all the extras you have to pay for — property taxes, maintenance, and homeowner’s insurance. Are these wastes?
Further, consider that the interest alone on a 30-year $200,000 mortgage financed at 5% will be over $186,000. Is this a waste?
My point is that buying a home is a good thing if you can afford it. But paying a reasonable rent for shelter does not fall into the category of money wasters.
Myth #5: Getting a raise at work can be a bad thing if it pushes you into a higher tax bracket
I love this one. Just imagine thinking that it’s a bad thing to get paid more money. I pity the fool who thinks that….lol
The truth is, your income is taxed on a sliding scale. Here’s what it would look like for a single person filing taxing in 2013:
10% tax rate on income – $0 to $8,700
15% tax rate on income – $8,701 to $35,350
25% tax rate on income – $35,351 to $85,650
28% tax rate on income – $85,651 to $178,650
33% tax rate on income – $178,651 to $388,350
35% tax rate on income – $388,351 or more
So the first $8,700 of your income is taxed at 10% and then the dollars after that up to $35,350 are taxed at 15% and so on. So if you get a raise and your income goes from $35,000 to $40,000, then only ($40,000 – $35,351= $4,649) will be taxed at the rate of 25%. This higher tax rate doesn’t apply to your entire income.
With this being the case, there’s really nothing to get all over heated about, huh?
Myth #6: It takes a lot of money to open an investment account
Many people find the notion of investing in stocks, bonds, mutual funds and more to be some sort of high finance endeavor. They think that you need a lot of money to get going. But that is far from the truth.
You can open an account at some brokerage firms by depositing a minimum of $25 or, in some cases, nothing. Once you open the account, you’re good to go. Purchase only a handful of stock shares if you like. Over the years, these firms have made it super easy for regular people to invest in the markets with very little money.
So there you have it. Once you take an objective look at these common money myths, it’s makes you want to laugh, right?
Paying rent isn’t wasteful if you need to a place to live. And getting paid more money should never be a reason to have an ulcer. So whenever you hear someone spouting off about some money matter that seems to sound a little strange (or illogical), do a little research. More times than not, your gut feeling will be correct.