7 Financial Myths Which May Be Hurting Your Bank Balance

Did you make a New Year’s Resolution to improve your financial health? With February coming to an end, now is the time to get your finances in tip-top shape for the rest of the year. To make sure you’re not budgeting based on bad science, here are seven financial myths to watch out for. 

Myth #1: Only people with money troubles need a budget 

It’s a pervasive myth that budgets are only necessary for people facing imminent financial challenges. In truth, everyone needs a budget! Tracking income and expenditures is the first step to reaching all kinds of financial goals: from paying off debt, to building an emergency savings account, to planning for retirement. Having a budget also means that if your financial situation changes and you need to tighten up spending, you’ll be more prepared to assess the situation and make cuts.  

Myth #2: Credit cards are dangerous and should be avoided 

When used irresponsibly, credit cards can lead to high-interest debt and negatively affect your credit score. However, as long as you’re paying your balance in full every month, credit cards offer a number of excellent financial benefits. Paying with a credit card—and paying it off—boosts your credit score, so you can access better financial services in the future. Many credit cards offer cashback rewards, so you get money back from card purchases. And, credit cards typically provide more robust threat protection compared to debit cards.  

Myth #3: Buying a house is critical to secure your financial future 

Buying a home is a great way to build equity and enjoy more predictable monthly payments. At the same time, if you’re not ready for home ownership—that’s okay too! In many situations, renting can be the smart financial choice. Renting frees up cash for other investments, and avoids the need to manage or pay for potentially costly home repairs. Not being tied to a physical location can also open up more opportunities for higher-income jobs which might require a move.  

Myth #4: Available financing should determine your car budget 

Just because you qualify for a forty thousand dollar car loan doesn’t mean you need to buy a forty thousand dollar car. instead of determining what car you want to buy based on how much financing you’re offered, crunch the numbers ahead of time to decide what vehicle you can afford. Most experts recommend spending no more than twenty percent of your monthly take-home pay on vehicle expenses, including loan payments, gas, maintenance and insurance.  

Myth #5: Investments are too risky if I’m saving for retirement  

Investments always come with some degree of risk, but due to the effects of inflation, financial advisors rarely recommend avoiding investments altogether. While a high-yield savings account is an excellent place for emergency savings or other money you want to keep liquid, invests help to ensure that your retirement savings won’t lose value over time. A financial expert can assist in developing a personalized strategy that matches your financial goals, target retirement age and risk profile. 

Myth #6: A low monthly payment is all that matters 

Without a doubt, healthy finances depend on balancing your monthly income and expenditures. At the same time, don’t be fooled into choosing a loan or payment plan just because the monthly payment is low. Indeed, financing options with low monthly payments may come with high interest rates or longer-than-average terms. When evaluating a mortgage, personal loan or vehicle financing offer, evaluate your total bill—including principal, interest over time and any fees—before making a choice. 

Myth #7: All debt is bad debt  

Understanding the distinction between different types of debt can help you design the right financial strategy. In general, mortgages, student loans and business loans are considered “good” debt, because these loans are designed to increase your net worth in the long run. When borrowed from a reputable lender, these types of loans should come with a predictable payment schedule and reasonable interest. High-interest debt, often linked to a credit card or auto loan, is more likely to negatively affect your credit score and should be paid off as soon as possible, possibly before building an emergency fund.