Many thanks to Nico Leyva for today’s guest post. Nico writes for Nerdwallet, a consumer finance website that promotes financial literacy and looks for the best ways to save you money.
You’ve probably heard the story about a friend who mixed cola and pop rocks to disastrous effect, or at least heard it secondhand from a friend of a friend, who heard it from their cousin…you get the picture. Urban legends and myths exist in every part of the world, and everyone seems to have a story that pertains to a certain aspect of life, whether it’s a first relationship, buying a new car, or going to college.
Personal finance is no different, and despite the fact that evidence can disprove most, if not all of them, many misconceptions retain their power. We’ve put together a list of common personal finance myths, and at least one reason why they’re not true.
1. Debt Is a “Four-Letter Word”
Well, actually, it is a four-letter word, but it doesn’t need to be that kind of four-letter word. Debt is very important for establishing and improving credit. Having a mix of some credit card and some loan debt, and managing the amount owed on each credit account, is a good way to improve your credit score.
2. Your Credit Score Is Permanent
This is a particularly frightening scenario, especially for younger consumers who may not have much experience with credit and debt. Contrary to what you might think, no credit score is unsalvageable. You can always improve your credit score with good payment habits, like paying on time and keeping the amount you owe relatively low. Newer credit information is more important than past problems.
3. Switching to a Credit Union Is Too Much of a Hassle
This is a big deterrent to many consumers, as they believe it would be way too stressful to switch to a credit union. But it doesn’t have to be! Many credit unions, including Consumers Credit Union, have switch kits that walk you through the process of changing your bank account in several simple, easy steps.
4. If I Make “This Much” Money, I Will Be Happy
While more money can put you into a more financially stable situation, there is no concrete amount of money that will improve your emotional well-being. So, while money can make you happy, having more money won’t necessarily make you happier. Also, many people who suddenly make more money tend to develop bad spending habits, leading them to feel less happy about their finances.
5. Saving Is the Way to Become Wealthy
All you need to do is save your money, and you will be rich, right? Well, not quite. Saving will add to your disposable income, but it’s important that you put those funds to use by investing, instead of spending them. IRAs, or individual retirement accounts, are tax-advantaged accounts that earn much better interest rates than savings accounts, and Consumers Credit Union has special CD IRAs that offer rising rates depending on how long you invest your money.
6. There Is a Secret to Getting Rich
For our last myth, we’ll tackle the big one. There is no secret to wealth, whether it’s immediate, lasting, or any other kind. Everyone is different, and every financial situation is unique. Developing strong money management habits and improving your financial literacy are the surest bets for putting yourself in good financial standing. But if someone is offering you an easy out to your financial problems, it’s probably too good to be true.
Unfortunately, there isn’t a catchall answer to your money issues. Your own path to improving wealth depends on the financial choices that you make. And don’t be afraid to ask for help, because Consumers Credit Union provides Accel Financial Counseling services and member education seminars free of charge.