We all have beliefs about money – influenced by parents, our friends, and society. These beliefs drive our behavior and sometimes we are left wondering what went wrong? To avoid the pitfalls of poverty we need to make the right decisions and navigate through the many myths that exist. We need to know what is fact and what is fiction – not always easy!
Myth #1: Fake it till you make it
Perhaps a good idea if you are vying for that promotion at work and are proving you can handle the job, even though it’s not yours yet. Not a good idea if you are trying to portray an image that is way above your income level. Going into debt to have the right car, clothes and possessions, could end up with you being the best dressed defendant in the insolvency court! Spend according to what you earn and live the life you can afford.
Myth #2: As long as I can pay it off, I can afford it
An easy trap to fall into if you are living from payday to payday. Except, at what point do you feel you cannot afford the extra expense? Paying off on something means that you have gone into debt, which means that you are paying interest, which is a total waste of your valuable money. Go into debt to buy a house or a reasonably priced car, but not for clothing, holidays, entertainment or material items that you don’t really need. Overall, too, you may find that you cannot afford to die – your liabilities outstrip your assets! Its financial back peddling all the way.
Myth #3: Better to pay off my debt before I start saving
It makes no sense to pay interest on debt at a rate much higher than you would receive on your investments or savings. So logically, it makes sense to first pay off your debt at the higher interest rate, and then save that money. The reality is that so many people seem to battle to get out of debt and stay out of debt. And while they are waiting and trying to get it right, they delay starting to save. If you are one of these people, start saving whilst you are paying off your debt.
Myth #4: A bank is the best place to save
A bank account will give you liquidity (i.e. ready access to your money), but not good growth long term. You will receive a fixed interest rate which will probably below inflation, so your money will lose value over time. If you are looking for growth on your money (and who isn’t?) and are prepared to invest for a longer term (2 years or more), then there other investment options such as unit trusts or a contractual savings plan with a financial institution that will make your money grow. Do your homework before investing your hard-earned money.
Myths are aplenty and they don’t always do you any good! Learn to cut through the clutter, and follow your instincts. Seek professional advice if in doubt, and stop the thoughts that lead you on the road to poverty.
