The Truth Behind 12 Money Myths
Our lives are stressful enough without having to deal with fears about money, the future, and the unknown. In the personal finance business, we speak to a lot of people and hear a lot of theories about money. Many of our readers are simply doing the best they can, while we work hard to provide guidance, support, and assuage their fears. To help you focus your energies on leading the life you want, we've compiled the top money myths we've heard. Read them, learn the truth, and put these money worries to rest.
Myth: It's bad to check your own credit score too often.
Truth: Although it will hurt your credit for too many outside agencies (like potential lenders or landlords) to get official copies of your credit report around the same time, checking your own credit score is free, simple, and easy. Simply go to Credit Karma (www.creditkarma.com); it will take minutes.
Myth: It's bad to use ATMs because someone could be skimming your card.
Truth: People have reported scams in which ATM card readers "skim" the info from your account to gain access to your finances, but that doesn't mean you can't use ATMs anymore. If you find yourself a victim, your bank should reimburse the money that was lost, according to Bankrate (www.bankrate.com). In the meantime, be alert by regularly checking your accounts for suspicious activity, and keeping your eyes out for anyone who tries to "help" you at an ATM; for a machine that doesn't look quite right; or for unusual signage that tells you to swipe in a different way. If your card isn't returned immediately after your transaction or after you've pressed cancel, tell your bank right away.
Myth: It's better to use cash than credit cards so you can stay on top of your spending.
Truth: Making purchases via credit card statements lets us review all of our spending in one, consolidated place. Plus, credit cards offer protections like insurance for purchases, travel insurance, and the ability to dispute charges. We recommend going cash-only if you have trouble controlling your spending. If so, your first order of business is to take a look at your habits and gain control over the way that you treat money.
Myth: You shouldn't make deposits to an ATM because a machine is less trustworthy than a human.
Truth: Humans can make errors too. Either way, it's your bank's responsibility to resolve the discrepancy. Pay close attention as you make your transactions and immediately report anything that goes amiss. Your bank is obligated to investigate the issue, so make sure that you have all necessary dates, transaction numbers, and pertinent info.
Myth: You should try to pay off student loans as soon as possible.
Truth: The most urgent debt is the kind that charges the highest interest rates. Although $30,000 in student loans may feel like a lot -- and you might be tempted to hack away at it as soon as possible -- it's more important to address that $500 in credit card debt first. Here's why: If, say, that $500 in credit card debt charges an interest rate of 15 percent and your students loans have an interest rate of 6 percent, you're losing money much faster from the credit card fees. That's where you should focus your efforts first.
Myth: If you want your money to be safe, you shouldn't gamble it on the stock market.
Truth: This is true, in part. Investing in the stock market comes with real risk, and there is a chance you could lose funds if that's where you put your money. At the same time, if you're saving over the long haul, the "safest" place to put your money isn't necessarily in a bank account. Over the years, inflation has tended to average about 3 percent, meaning that your money loses that much of its value every year. If your savings account is providing you with a mere 1 percent, you're actually losing money because you're not keeping up with inflation.
Myth: If you can time the market by buying when a stock is low and selling when it's high, you'll be golden.
Truth: This is true enough, but one of the biggest follies of investors is thinking that they can time the market. The majority of professional investors can't even time the market accurately -- don't get caught up in thinking you're the exception. We recommend against day trading or trying fancy tricks unless you're a professional.
Myth: The sale price is actually the lowest price.
Truth: First, buying something you don't need is never a good deal, even if it's on sale. Second, know that some "sales" aren't as good as they could be. Before jumping into a deal from Groupon or any other source that offers limited-time deals, quickly search the Internet to see if you can find comparable prices elsewhere. If so, take your time deciding if this is something you really want.
Myth: You can't afford to travel unless you have lots of money in the bank.
Truth: Although we're all about encouraging you to save, it's important to remember what you're saving for. Life is for living, and we want you to minimize stress and enjoy where you are now. That's not to say you should have a major splurge, but even if your budget can support no more than a staycation, the most important thing is to make time for yourself.
Myth: Canceling all your excess credit cards will help your credit score.
Truth: We don't recommend having too many open credit cards because that tempts you to use them all, and creates an administrative nightmare in keeping up with the paperwork. All the same, your credit score will take a small hit when you cancel a card, and it'll take a much bigger hit if you cancel a bunch at the same time. We recommend canceling only one credit card per year. If you have more than that, vow not to use the rest, tuck them away in a drawer, and make a calendar reminder to cancel another one next year, and the year after that.
Myth: When you deserve a raise, your boss will give it to you.
Truth: Not so. Plus, we think it's actually good for you to practice standing up for your own worth. Think of it as an exercise in recognizing your own strengths and stating your case with confidence.
Myth: The cost of an item is what's on the sticker.
Truth: You may end up paying more than just the sticker price: Remember that computers require software, clothing requires maintenance, and cars require insurance. That's not to say that you shouldn't have any belongings, but it's important to go in with your eyes open. We're all about the joys that come from living simply.
Originally published on LearnVest.com; republished with permission.
Copyright © 2012 Meredith Corporation.