Chances are you’ve probably heard one of these five myths about saving money.
Almost every friend circle has that friend that knows all the tips for saving money. The funny thing is, what you’ve heard may just be a myth. Here are five of the most common myths we heard from friends:
1. Cash is better than credit
This one was definitely in the top three. In fact, there is one friend that carries strictly cash – and doesn’t have a single credit card. The only piece of plastic in his wallet besides his license is a debit card that still has the activation sticker on it.
Why it’s wrong: Your credit score. 35% of your credit score is calculated by your payment history. The rest is a combination of how much you owe, what kinds of credit you use, length of your credit history, and the number of new credit inquiries.
How to save money with credit: If you pay your bills each month (#Protip: Autopay) on time, you incur no added costs. You can save money by using a card that offers both rewards and discounts with retailers you shop with. (Bonus tip: compare rewards and discounts before signing up for your credit cards. With the different types of rewards – cash rewards, air miles, reward multipliers if you redeem with gift cards, etc. – know what will work best for your needs long-term. Also consider a card’s long-term rewards, not the ones with a big payout upfront. Rewards with double rewards and revolving discounts can increase how much you can earn after your initial period.)
2. A perfect credit score means the best interest rate
Need a loan? Then you probably know there’s this magic thing called “interest.” Interest is a charge applied against the amount you borrow, usually a percentage, and is determined by that thing we just covered – your credit score.
Why it’s wrong: Generally speaking, you may not need perfect credit to get the best interest rate. Most lenders consider a credit score of 700 and above as excellent, and a score over 760 to be in the same line as a score above 800. So even if you have some issues in the past, most lenders consider a mix of your score, negatives on your credit file, and your income as the deciding factors of your interest level.
How to save money with interest: Shopping around can often save you in the end. Depending on the product you’re interesting in buying, you may find a better interest rate with a credit union or banking co-op.
3. Owning is better than renting
Considering dropping that rental to purchase a house? Then I bet you’ve either been told this myth or read it. Well, in some cases it’s true. In some cases it’s wrong.
Why it’s wrong: Unless you buy it with cash, you’ll be taking out a mortgage. A mortgage means interest. Here’s the crazy part: your first five years of payments will almost go completely to the interest on your loan. So unless you plan on living in your new digs for more than five years (read: staying in one place), it may not make sense to dump that rental. Also remember that as a property owner, you are the one paying for costly repairs or maintenance. Water heaters, HVAC components, kitchen appliances, roofs, trim and painting – these are all regular items that must be upgraded, repaired, or replaced on a regular basis (every 5 – 15 years) and can take a serious chunk out of your savings account.
How to save money renting: There’s a secret about leases, they’re negotiable. Landlords will often compromise on the price based on the length of the lease and the condition of the market. When researching properties, use websites that allow you to view how many days a property has been on the market. If a property has been on the market for more than 45 days, you can use this in your favor.
4. You need to make more to save
A common thing I hear from my friends. “If I made more, I could afford to save.” It’s true, in some sense. However there are ways to save with a limited budget.
Why it’s wrong: You should pay yourself first. Is $1,378 a lot of money to you? What if we said you could save that, in just ONE year by doing ONE thing (52 times)? Here’s how: It’s called the 52-week money challenge. Each week, put away money equal to what week of the year it is. So, the first week of January, put a dollar in your savings account. Second week, two dollars. Third week, you get it. By the last week of December, you’ll put in $52, and have $1,378 to show for it (without interest, of course). And a #Protip, consider going backwards. Put in $52 your first week, $49 the second, so on. Gift money, bonus pay, etc. all is easier to part with at the beginning of the year.
How you save money… saving: I don’t think an explanation is needed here.
5. I’m too young to invest
Want to work until you 90? Yeah, neither do I. So that’s where investing comes in.
Why it’s wrong: If you’re young, without family, and living independently, guess what: you should be a squirrel storing your money away like acorns. Sure, living the fabulous life can be great, impulse purchases, etc. – but remember each purchase you make at this stage takes away three you can make come retirement.
How to save money investing: There are many different types of accounts to consider here:
- IRAs (Roth or Traditional) – They have tax benefits for contributions
- Money Market accounts – A slower, safer way to save
- Certificates of Deposits – You’ll lock away your money for a predetermined amount of time
- Stocks & Mutual Funds – Buying stock in single companies or “Portfolios” or collections of companies
However, to really save with investing, we always advise to consult with a financial planner when you decide to start investing for retirement. You’ll pay upfront for the service, but will save much more in the long run.Saving money can be hard, but saving today can mean more tomorrow. With the right help, the things you can do may amaze you. Well here’s the good news: the DIY Tax Blog has relevant and helpful resources throughout the year, tailored to you. So if you like this article, hit the share buttons to send it to your social network. Like us on Facebook and follow us on Twitter to get more articles like this posted directly to your timeline or newsfeed!