While there’s a great deal of value to be found in traditional wisdom around money and finances, at least some of the advice that gets passed down contains more myth than reality.
Here are five popular money myths that may surprise you:
Myth 1 – All debt is bad debt
While it’s true that out of control debts can cause real problems for a household’s finances, a certain amount of carefully-managed debt can help a borrower reach their financial goals much more quickly and easily, ultimately providing enough value and benefits to justify their costs.
It’s not a hard-and-fast rule, but good debt can be broadly defined as borrowing money to pay for an asset that’s going to add value or provide future benefits (e.g. a home loan or business loan), whereas bad debt involves borrowing money to cover the cost of something that won’t offer the same kind of long-term value (e.g. using a credit card to pay for impulse purchases). Use your best judgment.
Myth 2 – Credit card rewards are worth the higher fees
Many of us love credit card points, as they reward us for doing something we already enjoy, namely shopping. However, the price we often have to pay for these credit card rewards are higher fees on our Gold, Platinum or premium credit cards.
When you crunch the numbers around some credit card reward programs, the amount you pay in fees is often much more than the value of the reward points you can realistically expect to earn on your regular spending. Using one of these cards to earn rewards could mean effectively losing money.
Plus, ever since new interchange fee regulations for credit cards came into effect in July 2017, more and more credit cards are cutting their reward point programs, making it much more difficult to maximise your points earned per dollar spent.
Myth 3 – A penny saved is a penny earned
While saving your money is more responsible than recklessly spending it, your cash won’t do you much good sitting in your transaction account, stuffed under your mattress or buried on a desert island. Instead, it may be worth considering putting your money to work.
Carefully investing your money in property or shares can allow you to grow your wealth, though there is always some risk involved. Another option is to keep your money in a dedicated savings account, which will allow you to earn some interest on your savings while keeping it relatively secure.
Myth 4 – Loyalty matters
It may sound cynical, but it doesn’t always pay to be loyal to your bank. Even if you’ve banked with the one institution all your life, ever since you were a kid, that’s no guarantee they’ll offer you the most affordable financial products, or deals that are suited to your personal finances.
Switching financial products, whether it’s a home loan refinance or a credit card balance transfer, is often much simpler than you’d expect, and other lenders may be in a position to offer more affordable terms and conditions that better fit for your household finances.
Myth 5 – Only rich people need financial advice
No matter how wealthy you are, managing your own money can be a rewarding experience, in more ways than one. But while there’s plenty of general financial advice available out there to guide your decisions, there are limits to how much this advice will likely apply to your household’s unique financial circumstances.
If you’re uncertain about any financial decision, large or small, it’s often worthwhile to seek expert advice from a qualified finance professional or broker. As well as offering industry knowledge and experience, a financial adviser can look at your household budget and recommend financial solutions specifically to help you reach your goals.