Myths and legends are part and parcel of the human experience.
Some of them don’t really harm us, like the Tooth Fairy or the Easter Bunny.
Others, especially financial ones, can cause irreparable damage to our futures.
You see, the wealthiest people out there are not usually the people who started out that way.
Rather, they are often those who worked hard, as well as invested in income-producing assets along the way.
They also understood the difference between money matters and money myths.
So, here are five money myths that it always pays to ignore.
1. Low balances, high limits
I’ve often said there is nothing wrong with having a credit card – as long as you have the ability to pay off the entire balance each month.
Some people, though, may not have large balances on their credit cards, but their spending limits are sky-high.
Lenders take into account the total of credit card limits when assessing your home loan applications and don’t care whether you only have a $500 balance.
Rather, they see that if you have the potential to spend $30,000 over four different credit cards, it will drastically reduce the amount you can borrow.
Expert money managers, on the other hand, have one credit card with a low balance, which they also pay off every single month.
2. Used cars just aren’t sexy
It’s common for people to want to spend some of the money they’ve been making – especially if their incomes have increased significantly over the past few years.
Young people especially fall into the trap of wanting to show their success to their friends and family by buying a brand-new vehicle, usually by using a personal loan with double-digit interest rates.
A much better strategy would have been to invest those extra income dollars into assets which grow in value over time.
Then, some years in the future, they can probably afford to go and buy a superior brand-new car – in cash.
3. Store cards don’t count right?
Using “interest-free” store cards to buy furniture and the like have been around for decades.
They work well for anyone who diligently pays off the loan within the required timeframes, because they won’t pay a cent of interest.
Sure, they may pay a small admin fee every month, but that is often a small price to pay if your fridge has blown up on a Friday evening.
However, for anyone prone to over-spending, store cards can create plenty of money woe because they are unlikely to repay the loan before the abnormally high interest rates kick in.
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When that happens, they soon find themselves struggling to pay off an amount that is ballooning every month because of the sky-high interest rates.
4. It’s too late for me
Some people adopt a defeatist attitude when it comes to doing something about their financial futures.
Perhaps they had children young or it took them a while to start earning a decent income.
By the time they’re in their 30s and 40s, they start to believe that it’s too late for them to improve their financial lots in life.
Of course, it’s never too late to improve your relationship with money or to make more of it.
If you don’t believe me, just remember that Warren Buffett, who is one of the most successful investors of all time, didn’t earn his first $1 billion until he was past 50.
He also still drives an old car and lives in a house that he bought way back in 1958… just saying!
5. I never use my credit card, so it doesn’t really exist
Some people have credit cards in their wallets that they’ve never used.
Perhaps they’re there for an emergency or a rainy day.
Often, they have more than one credit card with their name on it, because they tend to think that having access to credit, but not using it, shows they are worthy borrowers.
The problem with this “out of sight, out of mind” credit card approach can sometimes mean they forget to mention them in their loan applications.
The issue is that their prospective lender knows they have credit cards and starts to wonder why they haven’t been disclosed.
Indeed, they might start to ponder what else hasn’t been declared in their application, which is never a good state of play.
On the other hand, smart money managers cancel any cards they don’t use and they own up to any they do have.
There are myriad other money myths and fallacies which regularly trap the uneducated.
The key is to understand how your relationship with money can impact your future financial success.
Then work on ironing out any credit or debt wrinkles long before you lodge a loan application.
