We are all familiar with dozens of money myths such as “money doesn’t grow on trees” and we use the quite often. Most myths are fairly harmless and just for fun, however some can be dangerous and if you believe in them it can do serious damage to your finances. Here is a list of some of the most common money myths, some harmless and some dangerous. Feel free to add yours!
1. I Don’t Have Money To Save
This is probably the most dangerous myth to believe in. First of all if you don’t save you will never have enough money, second of all small amounts can go a long way in your savings especially when you take into account power of compounding. Unless you have a large amount of debt, there is no reason why you should not be saving.
2. Buy On Sale to Save Money
This is a great tip if you buying something you need on sale, however I am not sure how buying something that is on sale saves you any money? Did you really need that big LED TV that was 20% on sale or did you just throw away $2000?
3. I’m Too Young For Life Insurance
You maybe young but are you immortal? Age does not determine if you need life insurance or not, your responsibility to your family determines that. If you are young great! Take advantage of the lower rates.
4. I Don’t Need A Will Everything Is Going To My Spouse
Wrong! Unless you have a valid will your spouse may not get everything. If you die instate (without a will) your assets will be distributed according to your province or states legislation and this might not always be how you want it. So get your self a will.
5. Interest-Only Mortgages Makes Home Affordable
You could not be wrong anymore! Paying interest only you will never really own the home you are basically renting the property from the lender. Should the price the drop you may not be able to refinance it. If you cannot afford the payment just rent!
6. Active Funds Outperform Index Funds
Wrong! Studies show again and again that “professional” money managers rarely outperform the index.
7. You Cannot lose by investing in Blue Chip Stocks
Just investors who owned blue chip stocks in 2008.
8. Red Cars Cost More To Insure
This is one I used to believe until a few years ago, the theory was that red cars are more prone to theft and hence cost more. However the color of your car has nothing to do with your insurance premiums.
9. My Work Pension Is Guaranteed
Please do not rely on your work pension to fund your retirement. If we learned one thing from the last economic crisis is that nothing is ever guaranteed. Things may look great now but who knows what will happen in 15 years when you need your pension.
10. Timing The Market Is Easy
You always hear successful stories of those who have timed the market and have made fortunes. We rarely hear of the thousands who time the market but lose fortunes. Studies and reports show that market timing does not work for 95% of us, unless you have money to burn, don’t time the markets.
I am sure there are many more money myths out there, these are the top I think everyone should be aware of.
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What are your money myths? Share your thoughts!