There are many common beliefs out there about your finances. But myths such as “a penny saved is a penny earned” are just that — myths. Many of these beliefs are based on how our parents, grandparents, and even great grandparents thought about things. Many of these myths have the potential to give you false notions about your finances and what you should be doing with your money. Ready to learn the truth about five common money myths? Read on.
1. Banks are the best place for your money
Or, are they? According to Bankrate, using a savings accounts is similar to modern-day mattress stuffing. Low interest rates associated with savings accounts can actually cause you to lose money over time because the rates don’t keep up with inflation. This myth formed because there was a time when people could put money into a bank and see a decent return. Unfortunately, that is no longer the case.
2. Carrying a credit card balance will improve your credit rating
Not so fast. Carrying a balance and paying it off slowly doesn’t do your credit much good, Investopedia says. All it causes you to do is spend more of your money by giving it to credit card companies in the form of interest payments. If you’re hoping to increase your credit score, pay off your balance in full and on time each month. If you really want to boost that score, don’t charge more than a small percentage of your card’s limit. The amount of available credit you’ve used is another component of your credit score.
3. A penny saved is a penny earned
Everyone has heard that phrase at some point. But, in reality, pinching pennies and hoarding money won’t make you wealthy. The key to wealth? It’s how much you earn, Steve Siebold, author of How Rich People Think, said to Bankrate. Even if you save all of your pennies, it’s not realistic to expect to accumulate large sums of money when you’re making $50,000 per year. Rather than thinking in terms of trading time for dollars, acquiring wealth is actually a “nonlinear process and comes from generating ideas that solve problems,” Siebold says. So, when it comes to wealth — think bigger. No need to save pennies if you have a higher paying job.
4. Home additions increase your home sale value
Typically, they don’t, writes U.S. News. Many people are under the impression that by adding a room or a high-end feature, such as a swimming pool, they’re adding value to their home. However, while your addition may add value to the house, there’s also a good chance you’ve taken on some debt in the process, causing you to lose money in the long run. Always proceed cautiously with high priced add-ons and features when your sole goal is adding home value.
5. Home ownership is a guaranteed investment strategy
“Just like all other investments, home ownership involves the risk that your investment may decrease in value. While commonly cited statistics say that housing appreciates at somewhere between the rate of inflation and 5 percent per year, if not more, not all housing will appreciate at this rate,” according to Investopedia. Your home actually runs the risk of losing value over the years, meaning that when it comes time to sell, you could take a loss. There are many factors that could cause you to want to sell your house at some point, and if it happens during a time when the market is down, there’s a good chance you might not make much.