Five personal finance myths and how to avoid getting hoodwinked

There are as many theories on getting rich personal finance as there are dollars in the world.

But most of them are unnecessary because they do not take into account your personal needs and circumstances.

Certainly, some contain nuggets of wisdom. But none should be treated like the gospel and blindly respected, regardless of your individual circumstances.

Here are five personal finance myths that will make experts roll their eyes.

Myth # 1: Saving is good and spending is bad

At first glance, this advice seems totally uncontroversial. Getting your finances in order is about conserving as much of your income as possible, right?

Well, yes and no.

“If your strategy is to just save your money and leave it in a bank account for the medium to long term, it will end up costing you money,” said Montara Wealth chief executive David Hancock.

“Our money has to grow faster than minimum inflation. With record interest rates, the interest earned on money in a savings account is almost zero. “

So you need to make sure that your savings are generating high enough returns to be useful for important things later in life, like retirement.

If you don’t, your good saving habits may amount to very little.

Learn more about smart savings and smart investing:

Second myth: properties always make good investments

Investment property is incredibly popular in Australia, with about one in five households owning it, according to data from the Australian Taxation Office.

But they come with more risks and ongoing costs than many people realize.

“That’s a lot of risk focused on a single asset – there’s no diversification,” said Jacie Taylor, independent financial advisor at Periapt Advisory.

“If you buy in a suburb where growth is stagnant, you won’t be able to make the money you expect.

“[It’s also] illiquid, so you can’t always sell it for what it’s worth.

Ms Taylor said savers should consider a wide range of investments and remember to factor in costs such as stamp duties and upkeep when calculating the numbers for a potential investment property.

Wealth financial planner Sarah Leslie has also warned aspiring investors not to be lured in by the apparent benefits of negative debt.

“The reality is, it costs you money and potentially leaves you out of your pocket from a cash flow perspective, even after the tax benefits,” she said.

“While paying taxes on a positively oriented property can be a tough pill to swallow, having positive year-over-year cash flow and the benefits of any growth can really have a positive impact on your people. wealth creation strategies. “

Find out more about investment properties and negative debt:

Myth 3: Only the rich can get passive income

Ms Taylor said it’s a common misconception that investing for passive income is something only millionaires or home owners can do.

In fact, investing in stocks is becoming more and more popular among those saving for a home as real estate prices continue to soar in Australia.

And many types of stocks will pay regular dividends.

“If you are in defensive assets (for example, bonds or cash), you will usually need to invest a large amount of capital,” Ms. Taylor said.

“But if you invest more aggressively, smaller amounts of capital can generate higher returns. “

Metric Wealth founder Martin Tuttlebee said investing in stocks shouldn’t be too risky either, as there are many funds out there offering diversified investment options.

“There has not been a 20 year period in history where the stock market has lost money for those who have diversified widely,” he said.

Learn more about investing and diversification:

Myth Four: Financially Successful People Avoid Credit

There is no denying that debt can destroy your financial health.

But that shouldn’t be a reason to avoid credit altogether, according to Hancock.

After all, the biggest purchase most people make (their home) is almost always backed by a loan.

“Some people use credit cards very efficiently. They use points [and] it can be awesome, ”said Hancock.

“For others, credit cards are just a mechanism for overspending.”

Mr Hancock and Ms Taylor said the distinction between good and bad debt comes down to your spending intentions.

Going into debt to invest and build your wealth can be a great idea, but if you’re making lifestyle purchases with money you don’t have, it can easily go wrong.

“Borrowing money for financial advancement, like borrowing money to invest in stocks or property, can be very helpful,” Taylor said.

Learn more about using credit efficiently and finding the best deal:

Myth 5: Offset Accounts Make It Easy to Reduce Home Loans

Some mortgages offer offsetting accounts that can reduce the interest you pay on your home loan.

A popular strategy is to direct your payroll to a compensation account and let it sit while using a credit card to fund daily expenses.

It sounds like a good idea on paper.

But Sort Your Money founder David Rankin said many people fall into the debt trap.

“In reality, this advice turns out to be a debt trap for most people because they end up losing control over their spending,” he said. TND.

Ms Taylor said credit can be beneficial alongside a clearing account, but only if used correctly and in tandem with accurate expense calculations.

“The problem arises when you make a miscalculation or something is wrong with the payment of the credit card,” Ms. Taylor said.

“Suddenly you’re paying interest on the first day of purchase, not just the 56th day. “

Ms. Taylor also noted that home loans that offer clearing accounts may have higher interest rates than those without additional services.

It means you end up paying anyway.

Learn more about offset accounts and the best home loans: