5 Common Financial Myths

5 Common Financial Myths

It’s easy to fall prey to financial falsehoods that sound reasonable but may actually do your financial health more harm than good. It seems there’s no shortage of sources of personal finance advice on everything from savings and credit cards to retirement and buying a home. Here are 5 common financial myths that you are better off ignoring completely.

#1. I don’t make enough money to save:

Don’t assume that any amount of money you can set aside each month is too small to make a difference. Any amount of savings is better than nothing and the sooner you start this habit, the better it will protect you. Even saving 1% or 5% of your income can help you build an emergency fund to protect you in case of an unexpected financial emergency or begin building a nest egg for the future.

#2. A home is always a good investment:

Most people are taught that a home is always a wise investment and preferable to renting, but this isn’t always true. In many areas, rent is actually more affordable than owning a home, which comes with many hidden costs like property tax, maintenance, repairs, renovations, and yard work. Renting may be cheaper in the short term to help you free up money for paying off debt or even saving for your retirement.

#3. Carrying a balance improves your credit:

It’s a common misconception that you need to carry a balance on your credit card to improve your credit score. The truth is your credit score is influenced mostly by your payment history and credit utilization, or how much of your available credit you use. Using your credit card regularly and making payments on time is what builds a positive credit history, not the balance you carry. Carrying a balance on a credit card doesn’t just cost you in interest charges, it can even hurt your credit by increasing your credit utilization ratio. It’s best to keep your credit utilization under 20-30% for the best effect on your credit.

#4. It’s a good idea to get out of stocks when times are bad:

Market volatility is the price of great stock returns and there will always be times when your investment portfolio loses value. If you have a diversified portfolio, it will likely recover its value within 2 to 7 years of a market downturn. If you sell when the market is down, you are just turning short-term losses on paper into permanent and real losses.

#5. Estate planning is for the rich:

Almost everyone can benefit from estate planning, which isn’t just about avoiding estate taxes. A smart estate plan can ensure your wishes are followed in terms of financial management and health care if you are incapacitated. Your estate plan can also dictate who will care for your children if you pass away and who will inherit your assets. Estate planning can even be used to avoid the probate process for your heirs so they can access their inheritance quickly to reduce the financial burden of your passing.

Mark Angelo is the President of Yorkville Advisors.

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