8 Money Myths You Need to Shake
Word of mouth is often considered to be the most trusted kind of review; you’d implicitly trust the opinions of your family and friends when they tell you a new restaurant, TV show or clothing brand is good, and particularly if it’s bad. However, this rule doesn’t always hold true for financial advice. There are a ton of money myths out there – tips on how to manage your money that you’ve heard over and over again throughout your life, but in reality, aren’t actually helping you achieve much. In that light, we’ve compiled a few of the most common money myths and explained why you should take a second thought about what you’ve heard.
You need to make sure your credit card balance is always very low to build up good credit.
This has a grain of truth to it, but if you’re trying to build up good credit, you’re trying to prove that you’re consistently able to pay off a large balance on time (not that you’re good at minimizing your spending). Instead, use your credit card to make large purchases, but only if you’ve got the savings or income to pay it off rapidly. That way, there will be clear evidence that you use your credit card responsibly and can be trusted to repay larger-scale loans, like a small business loan or a mortgage, on schedule. You can still positively affect your credit score by paying off a low balance on time, but if you can’t afford to cover a large purchase without the help of your credit card, you’ll need to first focus on growing your savings before using your credit card to build your credit score.
My partner manages our finances, so I don’t need to spend much time on it.
This is quite a dangerous money myth, particularly for women. It was reported in a study by UBS Global Wealth Management that 58% of women leave household financial decision-making up to their male partners. Even if you have a partner that takes the time to meticulously reconcile your expenses on a regular basis, you also need to know what’s happening with your money in detail. For one, you’ll never be able to catch any mistakes they may be breezing past. You also won’t be able to effectively weigh in on where your limited resources are going. You may think you need to replace the dishwasher while your partner might think your extra cash should go towards a new car, but if you’re not taking part in managing your collective income, you don’t get to fairly make your case.
However, the real danger lies in what could be happening to your finances without your knowledge. It’s not a nice thing to think about, but unless you’re checking your bank statements regularly and monitoring account balances, you’d have no idea if your partner has been spending more than they’ve told you they have. They could be blowing extra cash on personal consumption (any kind of extra good or service that falls outside of essentials), or they could be sinking hundreds into bad investments. They could be missing bill or mortgage payments, putting your home and your access to water, electricity and Internet in jeopardy. Still worse, you may get hung out to dry if something goes wrong between you two and you split up; they might leave the relationship financially comfortable while you struggle to get back on your feet once you’re on your own. That’s not to say you need to have a separate bank account from your partner (unless you want one), but it’s important to recognize that understanding your financial situation gives you a ton of power and protection from financial ruin. Think of it as just another form of insurance; you hope you’ll never need to use it, but having it means you get to enjoy peace of mind knowing that if things go left, you’re protected.
I don’t earn enough money to be saving.
This is something we’ve written about in numerous Money Talks articles, but should be stated once again. If you find that you can’t seem to make your savings grow past a certain plateau, you likely need to reassess when you’re saving your money. You need to save right when you receive your paycheck. Decide on a set amount to save per pay period, or a set percentage if your paycheck is different each period, and move it out of your main bank account right after you receive it so you don’t have easy access to it. You could open a cheap or free online savings account to keep it in, or you could create a QUBER account and start moving your savings to the Vault (you can download QUBER and get started by clicking here).
Another crucial factor to consider in changing your saving habits is that you need to learn to keep your savings stored away unless absolutely necessary; as such, you’ll need to be sure to pick an amount of money to save each pay period that isn’t overly ambitious. It can be an exciting feeling to see your savings rise once you get started, but if you save too much and then have to pull from your savings to cover expenses on a regular basis, you’ll wear down the mental barrier that should exist about pulling from them. Once you feel that your savings are just an extension of your main bank account, you’ll repeat this process on a regular basis and be likely to see your savings dwindle in the future.
If you’re looking for more ways to save, think about any kind of money you earn from outside your main source of income. If you’re a creative person, you could start a side hustle and sell your wares online using a platform like Etsy. You could also sell your old but lightly-used clothing on platforms like Poshmark, or other types of belongings like old electronics or sports equipment on Kijiji. Chances are, you’ve got a ton of things that are just sitting around in your house that could be turned into extra cash you can put towards your savings! You can also put larger earnings, like your annual tax return, towards your savings instead of towards spending. Many people earmark receiving their tax return as a time to get themselves something nice, but putting it towards your savings means you can take some pressure off yourself to save throughout the year (which is something nice in and of itself!).
[Please note: QUBER is not affiliated with Etsy, Poshmark or Kijiji in any way.].
I’m in my 20’s, so there’s no need to save towards retirement just yet.
If you’re young, starting to save for retirement can seem a bit crazy. In theory, you still have around four decades between now and then, which leaves you plenty of time; it’s hard to wrap your mind around needing to start right now. Ideally, your earning power will also increase as you become more of an expert in your industry over the years, meaning you’ll hopefully have more income available to put towards your retirement fund later in life. However, you’d be doing yourself a major favour to start now if you can. Chances are, if you’re in your 20s now, the major rise in the cost of living over the past 50 years means the amount of money you’ll need to retire comfortably is going to be way higher than what your parents need to do the same. More and more Canadians are finding that they’re unprepared to financially support themselves in their old age and retire on schedule (around 65 or older). Statistics Canada shows that the number of Canadians working over the age of 60 doubled between the late 1990’s and 2017, from 14 percent to 27 percent, indicating that fewer Canadians are ready to take on the financial burden of giving up their careers. Tennessee Williams once said, “You can be young without money, but you can't be old without it.”
By starting on saving for retirement in your 20’s, even just a small amount (like $20 off each paycheck), you can give yourself a great advantage over the course of your working life. The amount you’ll be required to save to stay on track in your 30s, 40s and 50s will decrease exponentially if you get started now, meaning you’ll take some of the pressure off yourself to save huge amounts of your income during a period of life where many people are concerned with paying down a mortgage, raising children and saving for their kids’ education on top of thinking about their post-work lives. Plus, by starting now, you can entrench the habit of putting away money towards retirement early on; you’ll already be doing it without thinking by the time many of your peers are just getting started. It can be tough to look that far down the line, but know that by starting your retirement fund now, you’re taking care of yourself and securing a comfortable future.
All debt is bad.
Some debt is bad. Debt that you take on to fund consumption is bad debt is certainly bad; this is most often taken on as credit card debt, or sometimes as pay day loans (which should be avoided at all costs!) and usually occurs when people spend beyond their means for the sake of short-term gratification. This kind of debt has no positive impact on your future earning abilities, and can greatly deteriorate your overall financial health. Living outside your means makes it hard to pay down a high credit card balance on time, meaning those who spend recklessly are also more likely to compound their debt by racking up high interest fees. This kind of debt can ruin your credit score, and can thus reduce your chances of being approved for a large loan you might need later in life (ex. to buy a home).
But, if you’re taking out a loan that will help propel you forward, like a student loan or a small business loan, you shouldn’t be lumping that in with your credit card balance. These kinds of loans increase your chance of earning more money than you can currently, and are necessary instruments to achieve that change. That being said, you still need a strong plan laid out for how you’re going to pay back that debt. For a business loan, this would be an airtight business plan with solid financial projections, and for a student loan, this could be a clear career path you intend to follow after completing an undergraduate degree. However, this debt can be considered “good debt” as it will, in theory, improve your future earning power and in turn improve the quality of life you may get to lead.
Credit cards should be avoided at all costs.
As covered above, to build up a good credit rating, you need to be able to show that you’re able to use credit responsibly. The easiest way to do so is to have a credit card and ensure that you’re paying off your balance in full each month. Though this is simple in theory, the amount of people that struggle with actually doing so is where this myth comes from; once you’ve been burned by the destructive cycle of credit card interest fees, it’s fair to want to cut up your Visa or Mastercard and throw the pieces off a bridge.
However, this isn’t really a intelligent response to thoughtless credit card ownership. Credit cards are an essential part of any adult’s financial repertoire, and learning to use them responsibly is one of the key elements of attaining financial security. Credit cards provide you with a short-term emergency cushion that can save you in a pinch if necessary, like if your car breaks down or if your laptop needs repair. Of course, you should still have an emergency fund to pull from to pay off the balance ASAP in such a scenario, but having a credit card to use often covers the gap between the accident/event and a swift resolution. Owning a credit card also allows you to shop online, and in many cases, is necessary to have to access certain services (ex. providing a credit card number in advance to secure a hotel room). Even more, credit cards often earn rewards points or some other kind of bonus to their users; if used strategically, you can use your rewards points to offset the cost of groceries, clothing, entertainment and more. Many credit cards also offer various forms of anti-fraud protection, meaning if you get ripped off by a sketchy merchant, your credit card company will often step in to reimburse you (even just in part) for the damage done. By using cash or debit for everything, you won’t be able to make use of any of these features, and as such, are putting yourself at a overall financial disadvantage.
My bank knows what’s best for me.
If the 2008 financial crisis taught us anything, it’s that your bank isn’t always acting in your best interest. This is tough, because storing your life savings in a shoebox under your mattress isn’t a better alternative for how to store your money. Relying on a bank account (or multiple) to store your money is still the safest way to ensure your savings remain secure from physical damage, theft, and so on. However, it shouldn’t be forgotten that banks need to earn profit off of their clients to continue to operate (i.e., their account holders, including you). Their survival depends on selling you financial products, like credit cards and loans, and by charging those who break bank policies or engage in certain types of behaviour a series of complicated fees. So, if your bank is suggesting that you’ve been pre-approved for a higher credit limit on your card or a new type of loan, you shouldn’t assume off the bat that you actually need it.
Instead, if you do need a loan or a raise on your credit limit, be sure to do your research on what’s available to you (even from outside your current bank) and never take more than you are certain you can afford to pay back, even if your bank is offering it. There are a million different scenarios where paying back a loan could become more difficult than you had imagined when you signed on the dotted line, or racking up a larger credit card bill than usual can end in you owing your credit card company hundreds in interest fees. Also, remember that you have federal rights protected by the Government of Canada when it comes to how banks offer you financial products like loans, credit cards, investments and so on (you can find a list of them here). Your need for financial products is highly personalized based on your requirements and your income, and you (not your bank) are the only authority you should trust. Ultimately, ensuring that you’re well-versed in what you need and what you’re entitled to from your bank is key in protecting yourself from what could otherwise be a costly mistake.
I’ll be offered a raise if I work hard.
This isn’t strictly money management advice, but ties in to when people make assumptions about their future spending power. As mentioned above, people often assume that they’ll be earning an increasing amount over the course of their career based on the skill set they cultivate over years of work. While this is often true, this can contribute to people making harmful assumptions about how much they need to be saving and how much they can afford to spend at present. If you assume that you’ll be given a raise and it doesn’t happen, you might find you’re not on track to meet your large-scale financial goals. Instead, ask for a raise if you think you deserve one! Of course, do so politely, and with the evidence to back it up (if you haven’t been working hard, you don’t have much of a leg to stand on here). If you feel that your contribution to your organization deserves greater compensation, then your employer likely sees it too. They may be willing to offer you a raise, or they may be willing to offer you a benefits package you didn’t have access to before. Keep in mind that the worst thing that could happen after you ask is that they say no. Ultimately, it’s important to remember that while your employer may care about your wellbeing and value your work, they won’t necessarily just “give” you more money. Just remember to clearly explain why you deserve more than you’re getting, and be confident in yourself - fortune favours the brave!
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