Today I’m going to try and debunk some of the money myths I hear most often. I am hoping this will clarify some of the misinformation about personal finance and investing. Have a read and let me know your thoughts.
I Don’t Need to Save Unless I Have a Goal
It’s definitely more motivating to have a goal to save towards, for example a house deposit or holiday. However, even if we don’t have a large goal to save towards, it doesn’t mean we shouldn’t be putting money aside for our future. Putting these savings into your super, into your emergency fund or into investments is only going to help you set yourself up and shouldn’t be underestimated.
I Don’t Have Enough Money to Invest
Investing in the last few years has changed dramatically. Apps such as Raiz and Spaceship mean you can invest for as little as $5 at a time, something almost everyone can afford. No longer are the days where the barrier to entry are very high, it’s simply a matter of taking five minutes to set up an account and you are ready to go. These micro investing apps are a great way to get started and get comfortable with investing, especially if you only have a small amount of spare change. Even a little bit is better than nothing. Read my post “Battle of the micro-investing apps” to learn more about these apps.
I Need a Credit Card to Build a Credit Score
This is a common myth in Australia, most probably because this is true in North America. Our credit system works differently to the US, so in order to build a credit rating we don’t need to get a car loan or credit card to prove we can pay back credit. By paying your normal bills on time consistently you will build your credit score that way. The least credit you have the better off you will be when applying for a home loan. The banks look at afterpay, zip pay and credit cards negatively and they will impact your borrowing power even if you pay them off on time.
I Don’t Have the Time to Invest
Investing doesn’t have to be time consuming. Once you have a scheduled transfer set up and investments picked out you should only be checking back in on your investments every now and then or to reinvest. I generally check mine about once a month and buy new shares every two months. Investing in an ETF or managed fund is probably one of the simplest and least time consuming ways to invest. Investing in VDHG for example, would take approximately five minutes each time you invested, and would give you plenty of diversification.
Superannuation is a Future Me Problem
The longer you leave super the harder it is going to be to build up a suitable amount for retirement. The best part about contributing to super at the start of our working lives is that is has years and years to compound and grow. If we contribute often and early we will put our best foot forward for building a large amount of wealth to live comfortably in retirement. Check out no. 2 on my blog post 5 Reasons to Invest to find out more on how compound interest works and how more time works in our favour.
Investing is Risky, You Could Lose it All
Depending on the way you invest, this statement could actually be true. If investing in high risk volatile stocks (cryptocurrency, biopharmaceuticals, etc) for the short term, this can be very risky and you have the potential to lose a lot of money. This investing strategy is definitely not one I would promote as it does carry a high level of risk and is more like gambling than it is investing. While this strategy has brought many a lot of money, there are many more who have lost everything. The investing strategy I use carries much less risk, however has enough to provide a good return. I am investing for the long term (7+ years) which I believe is the only way you should invest. Investing consistently in index funds or ETF’s over many years and holding throughout in my opinion is the best way to increase wealth. Buying and holding for the long term allows you to ride out any volatility and gives your investment time to grow. Investing for any time less than 5-7 years increases the risk, which I explained in a previous post.
More Money = More Happiness
It’s proven that more money doesn’t necessarily mean increased happiness. If you can afford a roof over your head, food, warmth and are living comfortably, chances are more money won’t make you any happier. The reason you may think it will is thanks to consumerism, companies selling products need you to continue to want more in order to purchase their products. If you always want more, nothing is ever going to be enough. Learning to appreciate what you have and being content with your life and choices is going to make you happier, rather than earning a bigger pay check. Regularly giving generously also improves your state of mind in my opinion.
Investing is too Difficult Without a Finance Degree
Investing is not difficult at all! Yes while it can seem overwhelming at first, technology has made it so easy to invest these days and it doesn’t take long to get started. If you are still feeling unsure, get in contact with me and I can help get you started.
I Don’t Have Enough Money to Donate to Charity
Living in Australia with a full time job already puts you ahead of most people in the world in terms of privilege and wealth. Many people in third world countries are living in poverty, many are homeless and many are fighting diseases we have immunised against for years. Being generous is a great trait to have and I believe will leave you feeling better about yourself and more accomplished than you would if you just had that money sitting in your account. It doesn’t have to be much, but it never hurts to give. If you are looking for some charities you could give to go to my Be Generous post.
These are just a few of the common myths I have heard, and I hope I have proved them wrong. If have any questions or any other sayings you may have heard, comment below and I can try to answer them.