Cash rules everything around me -- except for the things that credit cards rule. Dealing with money is one of the hardest things about being a man, as the economy rises and falls like a horrible roller coaster with no safety bars. What makes it worse is that we don't really get a financial education in school, so we're stuck with the (often hilariously bad) advice we get from parents and friends. In this feature, we'll challenge 10 items of conventional wisdom about the world of finance and give you the truth.
Carry A Balance To Build Your Credit Score![money myths debunked]()
The credit industry is a massive scam -- you need to build debt to prove that you can borrow more, basically -- and one thing that confuses lots of people is what goes into a good credit score. Many people believe that carrying a balance on your credit cards -- that is, not paying them completely off every month -- is a net positive for your score. That's technically
not true. You need to show a balance every statement, but you can pay it off completely and still get the score improvement. The only way you would miss that is if you logged into your credit card's online payment program and immediately paid off all purchases before a statement was issued, and who does that?
It's Better To Buy Than To Rent![money myths debunked]()
Owning your own home is sort of the final boss for adulthood -- it signifies that you're finally in control of how you live. But for many people, it might
not be financially wise to stop being a renter. While it's true that you build up equity as you pay off your mortgage, the counter to that is lost "opportunity cost." Being tied to one location makes you unable to move for a better job, for example. In addition, houses as investments aren't always the best choice -- house prices, outside of bubbles, have kept close pace with inflation for the last 100 years. It may be wiser to keep paying rent and put the extra money away in a higher-yielding instrument.
A Bank Is The Best Place For Your Money![money myths debunked]()
From childhood, we're told that the absolute best thing to do with our money is take it to the bank and put it in a savings account to let it grow. But as an adult, there are plenty of
better options. The interest rate on a typical savings account is typically barely able to keep up with inflation, and all you're doing when you deposit is extending the collateral that a bank can use to get loans for itself. Back in the olden days, the idea of getting a return on interest was more powerful, but today's financial market just doesn't support it from a bank. Why should you use your cash to pay for another company's operations when there are smarter alternatives?
Invest In What You Know![money myths debunked]()
It's rare that we'll tell you not to heed the advice given by financial megalith Warren Buffett, but this is one place where most money managers
disagree with him. The concept of "investing in what you know" makes sense on the surface -- it's easier to evaluate the potential of stocks when you're embedded in the industry that they trade in. That's why you see lots of doctors investing in medical and biotech companies, for instance. The only problem with that is you're opening yourself up to risk due to lack of diversity, as well as missing out on potential windfalls from new and upcoming businesses.
It's Always Cheaper To Do It Yourself![money myths debunked]()
Let's face it: shelling out cash to pay a plumber, an electrician or any other tradesman always feels a little wrong. They're just dudes like you and me, right? Isn't it a better deal to do it yourself?
Not always, surprisingly. When you hire a skilled tradesman, you're getting the years of training and experience that they've invested in. It's important to think about the value of your time as well -- sure, you'll have to pay them, but how many more hours of your time will it take to do the job? And if something goes wrong because you're not an expert, how many more will you need to fix it? DIY isn't a foolproof path to a fatter wallet.
Life Insurance Isn't Worth It![money myths debunked]()
Back in the old days, it was almost a requirement to have a life insurance policy to provide for your family in case something happened to you. But in the modern era, life insurance has a bit of a
bad rap, with many arguing that it's smarter to put that monthly premium into a higher-yield investment. While that may sometimes be the case, it is possible to use a "permanent" life insurance policy as an extra layer of protection. Because your estate is guaranteed to see a return on the investment, you don't have to worry about losing money, and many policies even let you borrow against them for large expenditures.
Precious Metals Are Safe Investments![money myths debunked]()
If you listen to a lot of talk radio, you've probably heard this one. Put your money in gold and other precious metals, they say, because unlike corporations or bonds, they'll never lose value. So after a global financial crash, you'll be safe. Unfortunately, this investment strategy is
flawed to the core. In the event of a financial crisis, we can look to history to see what happens, and it's most commonly people returning to the barter system, trading goods and services for other goods and services. Gold is essentially valueless except symbolically in that scenario, so if you're really worried about the end times, stockpile cans of soup and clean water.
Pay Off Your Mortgage Early![money myths debunked]()
Home ownership is one way many Americans set aside equity for their financial future. Common wisdom holds that, if you can, it's better to power pay your mortgage off quickly to save money on interest and make the most out of your investment. However, that
may not be the case for everybody. Chances are, your home interest rate is lower than the rate on other debts, so if you're carrying credit cards or other liabilities, it's smarter to pay them first. Additionally, investing in retirement accounts like IRAs or 401(k)s can give you a return that more than beats the interest you'd pay. Think ahead and put your money where it will do you the most good.
Always Pay Cash![money myths debunked]()
One common piece of advice for people struggling with a budget is to make purchases with cash instead of cards. That gives you a clearer picture of the real money you're spending. But, like many money myths, it's
not 100 percent true. Using cash for purchases has a number of downsides. If you misplace cash or get it stolen, there's virtually no chance of ever getting it back, while credit cards can be canceled with a single phone call. In addition, many credit card companies have aggressive bonus programs that, if used correctly, can lead to incredible deals on travel and other large purchases. Just make sure to pay it off every month and you'll be fine.
Save Whatever Is Left Over At The End Of The Month![money myths debunked]()
When people set aside money for their retirement, a common practice is to bank whatever you didn't spend in a month. However, many financial experts warn that if you do that, you're not likely to maximize your nest egg. Instead, the best practice is to "
pay yourself first" -- before you do anything else, set aside a chunk of your paycheck and save or invest it. It means you're going to have less discretionary spending (which can be a short-term bummer), but in the long run it'll have big results. The sooner you start putting cash away, the more comfortable your retirement will be. This can be a challenging mental hurdle for some people, but only 23 percent of Americans have enough padding in the bank to survive for just six months with no income.
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