Myth #1: I don’t need to budget because I keep track of what I’m spending.
Keeping track of what you’ve spent is looking backwards. Making a budget is looking forward – it’s planning ahead so you’ll have money later for things you want to do or have.
Looking back at how you’ve spent your money is a good first step in preparing a budget. You can see where you spend the most and where you might exert a little control over your spending in order to save for a vacation, a down payment on a house – or retirement.
Myth #2: I’m too young to be concerned about retirement.
No, if you’re out in the world, working for a living, you are not too young. The truth is, the younger you are when you start, the easier it will be.
Step one: Get out of debt.
Step two: Create an emergency fund of three to six months’ worth of living expenses.
Step three: Look into retirement plans, putting money into IRA’s, etc.
Myth #3: Unless you have extremely wealthy parents who will pay your way, student loans are necessary to go to college.
The truth is, you absolutely can get a college education without going into debt. It’s not easy, but it will be worth the effort to begin your working life without that burden.
Look into college-specific aids and grants or federal and state grants. Work hard and earn scholarships. Get a part-time job during the school year and work full-time during the summer.
Myth #4: Car payments are simply a way of life.
No, they’re not. Driving a new car is a luxury and a status symbol – not a necessity. According to Experian Automotive, the average car payment today is $500 per month – which means $6,000 per year to own an “asset” that loses value each and every month.
For $6,000 you can buy a nice used car – one that will get you where you want to go just as easily as a $40,000 SUV.
A friend of mine told about wanting to trade-in her car that still had a year or two left on the payments. Even though she’d gotten a low interest rate, the car dealers all told her the car would “never be worth what you owe.” She decided to prove them wrong, and kept driving it for a couple of years after it was paid off. It was still worth several thousand dollars.
Myth #5: Debt is a tool.
This is a truth for some people, but a myth for most. Entrepreneurs who use debt to acquire assets that appreciate in value and generate a cash flow do use it as a tool. This is only after doing all the calculations – and sometimes even then they make a mistake.
Myth #6: Credit Cards are always evil.
No, not at all. Credit cards CAN be a tool and can even save you money, IF you use them correctly.
Credit cards can be a tool for bookkeeping, as they keep track of all your expenditures. Some even send you a year-end report categorizing all those expenditures. As long as they are paid in full each month, they’re a good tool.
Get a credit card with a good cash rewards program; use it for everyday expenses such as groceries and gasoline – then pay the bill in full each month. In a few months’ time you’ll have substantial cash coming back – which you can deposit directly into a savings or retirement account.
They can also be a safety net for times when an unexpected but necessary expense comes along – say when the furnace blows up and the temperature outside is ten degrees.
Credit cards are evil when mis-used.
When used for non-necessary expenses and you carry a balance from month to month, they’re a tool of destruction, eroding your income through interest charges.
Thousands of people overspend each Christmas, then make payments throughout the year on the gifts they gave. Go back to Myth #1 and make a budget. Put away enough each month to pay for those gifts as you buy them and you’ll save hundreds of dollars in interest charges each year.
Myth #7: Loaning money to family members is a duty or an obligation – and it shows you care.
The truth is – lending money to family members is a terrible idea. Quite often it doesn’t get paid back, and it does nothing but cause hard feelings.
A friend of mine told about lending her brother-in-law $1,200, which he never repaid. Did she and her husband feel resentful when the brother bought a new car, took an expensive vacation, or wined and dined his girlfriends every Saturday night? You bet they did. That loan caused a permanent rift between the brothers. They haven’t even spoken to each other in twenty years.
If a family member needs help and you can afford to provide it, make the money a gift.
Avoid the money myths and manage your money wisely – your future will thank you!
Mortgage Banker
Homewood Mortgage,LLC
O: 469.621.8484
C: 469.438.5587
F: 972.767.4370
18170 Dallas Parkway
Ste. 304
Dallas, TX 75287
NMLS# 234770
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