Our own mindset about money could very well be sabotaging our efforts to be financially well. Here are 11 damaging money lies you may be telling yourselves:
Money lie #1: Cash is better than credit card
In theory, this rationale makes perfect sense. Rather than habitually swiping your credit card, you should live within your means and only spend the money you readily have. Paying with cash may help you stick to your budget, but it won’t do your credit score any good.
Your credit rating can impact your financial moves, affecting the interest rate you receive on your loans. Therefore, you’ll want to maintain a high credit score. Using credit card to pay your bills is one of the easiest way to establish a credit record — as long as you ensure that you settle in full each month to avoid additional interest charges and late payment fees. Credit cards also generally offer perks like air miles and cashback, which can actually help you save money. It’s all about discipline.
Money lie #2: No saving money until all debts are paid off
Having huge or multiple debts can be a serious financial burden. Some tend to think saving can take a backseat until all debts are paid down.
Saving is necessary no matter what. You may suddenly have a medical emergency or had an accident and need to repair your car. Having some money socked away in an emergency savings account is necessary because you don’t want to rack up even more debt should the unexpected happen. Putting away as low as RM100 to RM200 every month in savings will help.
Also, look into ways to pay back your loan sooner. You will pay less in interest and without this debt, you will have more disposable income for your savings. You can start by paying more than your minimum payment each month.
Money lie #3: Insurance is not necessary if you have no dependent
Some may have this misconception that insurance is only for those who have dependents, and it’s a way to compensate your loved ones in the event that you are sick or have passed on. Being ignorant towards having insurance coverage, and also an adequate coverage, is a huge risk that could deplete your finances and turn your life upside down. This can be more dangerous if you don’t have enough money put away to be able to cover such crisis either.
Health, home and life insurance are the key coverage you should have. Even if you don’t have dependents, you will need insurance to replace your income in the event that you are unable to work anymore, or even to settle your final expenses, in the unfortunate event that your passed on.
A short hospital stay or critical illness treatment can run you dry financially. Even beyond that getting covered if you get crippled and cannot work for an extended period of time is extremely important.
Money lie #4: Investing in stocks is too risky
When the stock market crashed in 2008, many made huge losses while some lost their jobs as companies were retrenching. This financial meltdown has impacted people’s attitude towards investing in stocks.
However, the truth is that investing in the stock market is one of the best ways to help savings grow against inflation. All we need to have is the time and patience to ride through the market volatility.
If you are unsure, start by investing a small amount and add on later as you gain more experience and confidence. Also, invest an amount that you will be fine about keeping away for some time. Opt for a diversified exchange traded fund (ETF), which is less risky than individual stocks which are more volatile. Stay away from individual stocks unless you have the time, knowledge and investing time horizon to stomach the risks that comes along with this.
Money lie #5: Financial adviser is only for the wealthy
People generally eye financial professionals with measure of caution — some just do not trust an outsider to handle their money, while others think they don’t need one. People are highly individualistic and don’t feel comfortable trusting someone else with their money.
They tend to think they can just figure it out on their own with a little input from other trusted and experienced friends or fellow investors. Friends or other investors may offer sound financial advice, but they only know what’s worked for them – which may not necessarily work for you.
Financial adviser helps you to work out a strategy that fits your risk appetite and also your financial goals. You don’t necessarily need to be wealthy to engage an adviser to help you.
Find a financial adviser that will give you the financial advice tailored for you. He must take the time to get to know you and your goals —and make recommendations that are in your best interests. Getting a financial adviser helps you get a head start on getting your financial goals on track earlier and time is money!
Money lie #6: Once I hire a financial planner, I don’t need to do anything
The biggest benefit of consulting a financial planner is getting your financial affairs organised. The financial planner can provide accountability and act as a sounding board. They provide behavioural support and help keep clients away from bad or impulsive financial decisions. And that’s only the beginning.
However, the financial planner will require your input to set the financial plan in motion. Your planner can’t increase your retirement contributions for you or decide whom to name as beneficiaries on your policies—those are all in your control.
It is also your job to inform the planner to any changes in your goals, so he or she can review your portfolio accordingly.
Money lie #7: I am too young to think about retirement
This is one of the biggest money lies that is often uttered by young adults in their 20s and 30s. They believe that retirement is something too far away in the future and would most probably only consider retirement planning in their 40s or 50s.
The truth is, you are never too young to think about retirement. If you want to live through a comfortable retirement with fewer financial worries, now is the time to start planning.
Instead of basing your future needs on your current income, start by estimating your post-retirement expenses. From there, work backwards to estimate what sort of investment returns you’ll need to generate.
Money lie #8: I don’t make enough to start saving
Having a low income isn’t an excuse to put savings on hold. An emergency fund can be a lifesaver after a job loss or medical problem. Make saving a priority and then make adjustments to your spending habits to save up as much as possible. Even if you only save a little, something is better than nothing. Take your lunch to work, carpool or simply shop less.
Money lie #9: My savings will be safe in a bank account
Too many people have the illusion that their money is safe as long as the balance doesn’t reduce. So, they believe the best way to keep them is to lock it up in a savings account.
However, the reality is that inflation will eat into your purchasing power unless you learn how to combat inflation by investing your wealth. We shouldn’t take up more risk than what we can digest. But not taking any risk will cause inflation to cripple the value of your savings.
Money lie #10: I don’t have enough knowledge about investing
Contrary to popular belief, being investing savvy isn’t something only applicable to the rich. Anyone can acquire that knowledge with practice, learning and observation (and also frequent visits to our site J)
You most probably can leave the stock picking and day trading to the professionals, but you can stick to the effective strategy of saving early, be aware of the investing fees and picking an asset allocation plan where you can stay on the course even if the market takes a dive.
Money lie #11: Only older or wealthy people need a will
Without a proper will in place, you could leave your asset in the hands of squabbling family members once you are gone. Even without the drama, you could save your family a whole lot of trouble by having a will in place after your passing.
When writing a will, you will be able to look into certain financial issues to ensure your family is well protected no matter what happens, such as whether you have the right insurance coverage and ways of replacing your loss of income.
If you sit back and do nothing to fix your money situation today, you would most probably be in the same financial predicament 10 years down the lane. Rather than deceiving yourself with money lies and tolerate a less ideal financial situation, learn ways to improve your personal finances and act proactively on improving your finances.