While growing up, we all have at some point been told that money doesn’t grow on trees. We’ve been told that a penny saved is indeed a penny earned. We’ve further been told that every investment is worth every penny we put into it. Well, how about I tell you that all this was misplaced and did not make any financial sense. While having developing good money saving habits is of essence, the truth of the matter is that we have come to believe and implement money saving myths that simply do not make any financial sense. So what are these money saving myths?
Put money in savings bank accounts
Well, for some reason, the argument is that it’s safer to put money in a savings account as opposed to stuffing it under the mattress. While saving money is good, it is imperative to note that putting money in a savings account could essentially make you lose more money in the long term as the meager low interest rates do nothing to keep up with inflation. The myth in essence stemmed from the time when our great grandparents would put money in the bank and end up getting a hefty return. The situation is no longer feasible and as such placing money in a savings bank account does not assure you great returns.
Investing in a home is a good investment
It used to be a good investment but it no longer is. Financial experts opine that investment of a home can be seen more of a risk especially if you are unable to sustain your mortgage. The increasing property maintenance costs as well as tax have made home investment a little bit unstable. Well, this is not to say that a person should not invest in a home. The emphasis should be on repaying mortgages as soon as possible. It is essential to note that while a home’s value can fluctuate tremendously, the investment is not foolproof. Inability to pay mortgage can lead to auctioning of your home and losses in money.
The question therefore that we need to ask ourselves is whether we need to fast track the process of repaying a mortgage. In this aspect, we need to be certain whether we intend to stay in the home for the rest of our lives or if we have plans of selling it at some point. If we intend to stay for the rest of our lives, it would be imprudent to pay off the mortgage quickly as you would essentially be tying up your money in an illiquid asset and can’t get back the same money unless you get rid of the home by selling it.
Paying using cash is the best
The thinking behind this myth is that you keep tabs on your expenditure and avoid impulse buying. While this might be true to some extent, the idea that you should always use cash when making payments is misguided. You essentially end up missing on goodies and promotions offered by credit card companies which might ostensibly make you save more money. You miss out on reward points that over a period of time ensures you save money on say a trip or airplane tickets. However, the key is in ensuring that pay off or clear your credit card debts monthly.
Invest in what you have good knowledge and understanding in
While investing in something you are knowledgeable about is good, diversification is much better as it reduces risk. Putting all your eggs in the same basket can be risky. If for instance you invest in real estate stocks alone, you stand to greatly make a loss and lose all your investments should anything happen to real estate industry. You will not suffer the same fate if you took time to diversify your portfolio.