Myths About MoneySunday, May 02, 2021
The world of personal finance is one in which each person must enter when they come of age. But there are so many myths about money passed down from one generation to the next that young people today believe, causing them to make the same mistakes their parents and grandparents did.
Let's examine eight of them.
Men are better at managing money than women.
Some women get into a relationship with a man, thinking he will take care of the big money decisions because he's better at doing so. The truth is, money management isn't some trait with which men are more genetically disposed. Studies have shown that there is little difference between financial habits of the sexes. Financial knowledge is available to anybody, regardless of gender, who educates themselves and applies that information. (As a sidebar, do not leave important aspects of your life under an outside party's control even if there is love and trust. Even with the best of intentions, accidents happen; your spouse or partner, no matter how his heart is in the right place, could suffer a loss on a “sure thing” that ended up not being a sure thing after all. If you absolve yourself of participating or being aware of how you as a couple invest and manage money, then the loss is also on you.)
The more your income, the more your wealth.
On the surface this would seem moot. But wealth is amassed by saving and investing, not by all the flashy things you can spend your money on once you find yourself in a higher income bracket. Remember, being rich is not the same thing as being wealthy. If you're making more money than ever before, but you are spending more, more money is going out than what is coming in, so you may be cash-rich, but you don't have real wealth, and neither are you building it. Wealth is created by retention of assets, appreciable assets.
People who make less money cannot save.
“One-one cocoa full basket,” we say in Jamaica. No matter how small it may seem, always put something aside. Do this as soon as you get paid. You might even explore setting up some kind of auto-deposit system that diverts an agreed-upon amount to an account before you even see it. You can't spend what you don't have or see. Pay yourself first because if you tell yourself you'll save what's left at the end of the month, it's guaranteed there won't be anything left at the end of the month. I recently spoke about using your insurance policy to create generational wealth. Finding large sums to invest is often daunting but regular payments on an insurance policy can create a legacy for those you leave behind.
Income comes from one good job.
This might have been an axiom for your parents' or grandparents' time. Not anymore. In the same way that you need to diversify the way you save and invest, you also might need to diversify your income streams. Do you have a marketable skill from which you can earn money during after-work hours or on weekends? It's the age of the “side hustle”, and there's nothing undignified about it, if it is becoming patently clear that your single income is no longer able to put you on track to meeting your short- and long-term financial goals.
Cash is always better.
There are people who feel it's always better to stay away from credit cards at all costs. Yes, the goal is to keep debt to a minimum, and paying with cash helps to do this. But credit cards are a convenience in this modern age, providing so much coverage on things like fraud protection and travel insurance as well as providing benefits like cash back and travel rewards. If your wallet full of cash and credit cards is stolen, you can always call and cancel the card; the cash, however, you've pretty much said goodbye to. Use your credit card judiciously as a substitute for the cash you know you can pay back when payment is due to avoid accruing onerous interest rates.
Save for retirement later.
When you're young, retirement can seem such a long way off. That's a good thing. The earlier you start putting money in a retirement savings account the more the compound interest it will accrue, leaving you in good stead, over time, when you reinvest your interest or dividends, when you've come to the end of your career.
Budgeting is unnecessary if you keep a mental track of your money.
Using a mobile app to check your bank balance every so often is no substitute for making a budget. Fact: A budget allows you to break down the amount of money you bring in and allocate your spending accordingly. Pre-plan, each month, what you are spending, saving, and putting towards debt repayment. In the same way that, according to the mantra for the Instagram age, something doesn't exist unless pictures are posted on social media, you don't have a budget until there's proof via visual medium. Write it down.
Money can't buy happiness.
Though money can't buy happiness, it can however help you achieve the goals and dreams that will make you happy. History is replete with examples of unhappy rich people. How is happiness defined? Typically, it's tied up with one's emotional well-being and a sense of purpose in one's life. A 2010 Princeton University report conducted on test subjects showed that as their income increased so did their emotional well-being; in other words, their happiness. The knowledge that making more money has the ability to help you reach your financial goals, as well as build generational wealth, and not simply meet basic needs, can greatly cut stress and improve your emotional outlook. So financial security will impact your mental well-being.
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