Personal Finance Myths : Busted

Myths are ancient stories passed down through time. Personal finance existed from the time money came into existence in the world. Hence there are myths about it. However, they only change from time to time, with investment vehicle available in the market. Here are some common myths in the current age of finance.

There is no need for an emergency fund, why are credit cards available?

As long as there is enough balance on the credit card, there is no need for an emergency fund. Sorry to burst the bubble but credit cards do not serve an emergency purpose at all. A person who just lost his/her job will not be able to pay rent or home loan EMI through credit card. A one-time major car repair or the automated bills cannot be paid through credit card either.

Having an emergency fund is a must. It should have at least 6-9 months expenses covered along with the cost of the last emergency. Even if the person loses a job, he will have enough time to search for another one. It also reduced an enormous amount of stress during unemployment.

To invest one needs to be rich

One doesn’t have to be wealthy to invest. One can invest with an amount as low as Rs 500 a month through SIPs in mutual funds. With more increased access to trading and investing through multiple platforms, investing has become as easy as online shopping. It is not about the amount you earn, but the amount you save makes you rich. Start investing regularly in small amounts with consistency for the long term to build a sizeable corpus.

Buying a home is better than renting

Owning a house or renting it out is one of the significant decisions made in India. Owning a house comes with the satisfaction of fulfilling a life goal. It’s more of an emotional decision than a rational one. Having a home is considered as a good investment. However, sometimes buying a home doesn’t make sense. At the starting of a career, or staying for short durations in a place, renting is more sensible. Renting is cheaper, and one can concentrate on their job without thinking about maintaining a house and paying loan EMIs. Renting or owning a home depends on many factors that need to be thoroughly analyzed.

Gold is a smart investment

Gold has been a famous investment avenue for the longest time and still is. People resort to investing in gold and consider it as investing. Gold as an asset is very volatile and works against the stock market. The only asset which gains to a fall in the market. However, the returns from gold investment aren’t that promising when compared to other avenues. Also, if there is a collapse in financial markets worldwide, having gold isn’t going to help either.

Retirement is a goal that doesn’t need focus until the age of 40

People usually retire at the age of 60 or 65. Thinking about it from the age of 40 gives us enough time. It is the general notion of people nowadays. However, at 40, the financial responsibilities are at its peak. At that age, it’s difficult for people to set aside money for retirement. Investing a little every month towards retirement right from the time one starts working reduces the financial burden. Also, since the financial responsibilities in the 20s are hardly any, one can take more risk by investing in equities and take advantage of the power of compounding.

Don’t earn enough to save

It’s one of the common excuse people give. They don’t save or invest as they don’t make enough. Most of the youngsters live paycheck to paycheck. They have to break this cycle. Significant lifestyle changes, creating a budget, and sticking to it, automating payments and investments at the start of the month are a few changes that one can undertake to break the cycle.

Having a loan is bad

Loans are always not bad. Taking a loan to build an asset that gives a higher return than the interest on it is profitable. By taking a loan, one can create wealth with limited financial potential. If one waits until they build a corpus to buy an asset, then the prices may go up. Funding a house or a business through a loan through affordable EMIs is good. However, a repayment cycle should be in place before one takes a debt. Investing, along with debt repayment, is possible. Prioritizing which debt to pay off or which goal to invest for is essential.

Conclusion

Handling finances has never been stress-free, and most of the times, people come up with an excuse that no one takes anything with them. They come empty-handed and go empty-handed. There is no guarantee that you will enjoy the wealth you create. You could die tomorrow, but there are high chances you will survive and have no financial freedom. You’ll only wish that you were a little more considerate about the future and handled your money in a better way. Even if you die, your legacy will continue, and you will be able to help your kids with their lives.

All these myths are believable, and most of them are real sometimes. It all depends on the situation of a person and the decision he/she takes. Also, what is right for one may not be valid for the other. Don’t let these myths take away your financial freedom from you. Plan for a better future and financial freedom.

Happy Planning!

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