Many people feel uncomfortable or anxious when it comes to subjects like personal finances — which is a fair reaction. There’s so much information and taboo around finances that it can be hard to wrap our heads around, separate the good advice from the bad, or, as we’ll address here, separate myths from realities.
To help separate myth and fact, let’s look at eight widespread myths about our finances.
Myth #1: Cash Is King
The phrase “cash is king” has been around for a long time, and you’ll hear it far more often in times of economic uncertainty. It refers to the idea that when you have cash, you can use funds immediately when you need them, unlike with investments.
There are certain scenarios where this saying makes sense, like having a checking account to pay off bills or supporting hobbies and entertainment like the casinos on the BonusFinder website here. Cash in a savings account also makes sense as you can dip into emergency savings quickly and reliably in times of need. However, in terms of making your money work in your favor, cash does not rule all. Instead, investing is the more lucrative long-term option.
Myth #2: Keep Your Money in One Main Bank
Those checking and savings accounts we just mentioned? They don’t need to be in the same bank. Banks with good checking account options often don’t offer the best savings account options, and vice versa. Because of this, it’s best to shop around and find options that work for these different purposes.
For instance, for a savings account, you might be better off at an online bank with high-yield savings account options and a brick-and-mortar bank for your checking account since they tend to have lower fees for making transactions or transferring your money. Alternatively, you could explore solutions like albert banking, which offers convenient financial services to help you manage your money more effectively.
Myth #3: Investing Is Just for the Rich
Investing may feel like an activity that’s reserved for an elite group of wealthy individuals, but when we set aside our feelings and look at the facts, it’s actually a way for people from any financial background to start growing their wealth.
Many investment accounts or portfolios have low investment minimums and much higher interest rates or dividends than savings accounts can offer. This increased rate helps the value of your cash grow over the long term. You can even make shorter-term investments, though your earnings won’t be as much as your long-term investments.
Myth #4: Investing and Stocks Are Too Risky
While there are risks when investing, you don’t have to place any more risk than you’re comfortable with to get started. There are different levels of risk you can take on when investing, depending on the type of investment you make.
Often, the idea of investing being too risky, particularly with stocks, is related to the concept of placing all your eggs in one basket — or putting all your money into one stock — and it’s recommended that you avoid doing this because that is risky. Instead, it’s recommended to have a diversified portfolio.
A diversified portfolio is made up of different investment types, like stocks, bonds, and certificates of deposit (CDs), for a range of companies and organizations. This way, if one company’s stock performs poorly, your portfolio will be more resilient and still deliver dividends (or earnings). A portfolio with more bonds and CDs is usually a low-risk option, while one with more stocks is a higher-risk one.
Myth #5: Financial Advisors Are Only for the Rich
A financial advisor sounds like something you’d only need if you have a lot of money, and while they can certainly help people manage that, this isn’t the only situation where someone might seek out one. Advisors can help anyone develop a financial plan to help their money go further for their personal goals.
For instance, all those investment options we just touched on are something a financial advisor can help you with. They can help assess your comfort level with investment risks and offer options that best suit your preferences. While it might feel like it’s adding to your expenses, getting assistance from a financial advisor can pay for itself by helping you grow your wealth in the long run.
Myth #6: Early Retirement Isn’t Possible
If you daydream about leaving your job and never looking back, it doesn’t have to be as far off as your 60s. A whole movement around this idea has become hugely popular — the FIRE, or financial independence, retire early movement. With careful financial planning and goal setting, many young Americans have found ways to make leaving their job a reality.
Myth #7: You Don’t Need to Start Saving for Retirement Until You’re Older
Even if you have no interest in the FIRE lifestyle, the sooner you start tucking away savings for retirement, the better. Typically, it’s recommended that you invest your money to keep up with inflation, and the best way to get a lot out of investing is by doing it over the long term. A long-term investment allows you to capitalize on compound interest, where the interest you’ve earned from investments or high-yield savings accounts earns you even more interest.
Myth #8: It’s Good to Carry a Balance on Your Credit Card
When it comes to your credit card, the sooner you can pay it off, the better. The interest rate you’re charged on your credit card can be one of the highest and can cost you quite a bit in the long run. In addition, it’s also beneficial for your credit score to only use a small percentage of your credit card limit, so paying your balance off in full when you can is ideal for keeping your credit use low.
Summary
Personal finance can make people uncomfortable, but talking (and reading) about it can help dispel myths like the ones discussed here to ease the financial anxiety many of us live with — because when it comes to your finances, knowledge is power.
