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Sometimes it’s difficult to spot the difference between good and bad advice. Amidst questionable suggestions from family and friends, contradicting web searches and the hundreds of “get rich fast” books at your local library, it can be especially hard to know what financial advice is worth your time.

In this blog, we’ll explore 11 common personal finance myths, clear up the misinformation and uncover the truth.

#1 – You don’t need to start saving for retirement until you’ve been in the workforce for a few years.

This is false. Retirement savings rely on time. The sooner you begin to save for retirement, the longer that money has time to grow.

Most financial planners suggest that you put 10% to 15% of your income towards retirement. They also recommend that you start saving in your 20’s. If that percentage isn’t possible yet, that’s okay! At the very least, make an effort to meet any retirement matching perks that your employer has to offer. You can always increase your contributions as you earn more over time. 

#2 – Checking my credit report will hurt my score.

Many people are hesitant to request copies of their credit reports out of fear that it could affect their credit score. Fortunately, this isn’t true! To better understand this, it’s important to know the difference between these two types of credit inquiries:

  • Hard inquiry: This is the type of inquiry that a lender or a credit card company conducts as part of their decision-making process when you apply for a new line of credit. If you apply for multiple lines of new credit in a short period of time (think, “I applied for two new credit cards, a mortgage and a car loan all at once”), it can negatively impact your credit. The exception to this is if you’re “rate shopping”; if you keep your shopping window to about 30 days, multiple hard inquiries will typically be considered as one inquiry.
  • Soft inquiry: This is when you check your own credit, when you give a potential employer permission to review your credit, or when a business checks your credit to “pre-approve” you for offers. Since they’re not tied to a specific request for a new line of credit, they do not affect your credit score. 

Checking your own credit regularly (which is considered a soft inquiry) can help you better understand your lending history. It also allows you to detect any inaccuracies or fraudulent activity. You’re entitled to a free copy of your credit report every year from Equifax, Experian and TransUnion – be sure to take advantage of it!

#3 – Budgeting is restrictive.

One of the most common misconceptions about budgeting is that it cuts out all of the fun things in life. Sure, you can build your budget that way, but we definitely don’t recommend that! 

Rather than thinking about the restrictions of budgeting, focus on the freedom it gives you. Were you ever worried about whether or not you have enough money to make a necessary purchase? Have you felt unsure of how much money you have and where it’s going? Have you caught yourself wondering if a lingering subscription or unused gym membership is sucking your checking account dry?

Budgeting allows you to create a clear map of your finances and truly understand where your money is going. By mapping out each month’s necessary financial commitments, you can calculate what’s left over, which gives you more freedom to decide what to do with the extra cash.

#4 – There are “good debts” and “bad debts”.

Debt is complicated and hard to categorize. You may have heard that “good debt” is money owed for things that could increase in value over time, like student loans, small business loans or a mortgage. “Bad debt,” on the other hand, might refer to things that won’t increase in value over time, like credit card debt, car loans or other consumer debt.

While it may feel easier to slap a simple label on an investment, debt is much more nuanced. Here are some examples:

  • One person may find value in the college degree that they earned thanks to their student loans. Another person may not have been able to find a job in their field of study or complete their degree, considering their student debt as “bad debt” that didn’t add value to their life. 
  • You may not experience increased value in taking on a loan for a new vehicle. Another individual’s car loan may have helped them get the vehicle that’s pivotal to growing their small business.
  • One friend might consider their credit cards to be “bad debt” because they struggle to make their payments and continue to rack up interest. Your other friend may find their credit card use to be extremely valuable, as they’re careful to pay what they borrow in full every month and take advantage of each card’s reward program.

Ultimately, debt is debt – it’s value depends on your level of risk and what you consider to be rewarding.

#5 – Carrying a balance on my credit card every month can increase my credit score.

This old and common myth is not true. When you don’t pay off your credit card balance every month, you’re still responsible for paying that money back PLUS interest. This only increases the amount of debt you owe, which can lead to a decrease in your credit score.

Rather than carrying a balance, credit card users should strive to pay as much of their balance as they can every month. This keeps your credit utilization ratio low, which can increase your score.

#6 – Credit cards are financial traps.

Credit cards come with many pros and cons. On one hand, they can help you build credit, cash in on store credit, and allow you to make more secure payments with their fraud protection benefits. Unfortunately, credit cards can also come with high interest rates and steep fees, leading those who fall behind on payments into massive amounts of debt.

Everyone’s experience with credit cards is different, but they can be beneficial if used carefully. If you’re struggling to pay back what you owe, you may want to consider your credit card debt help & consolidation options.

#7 – If my partner manages our money, I don’t need to look at our finances.

Similar to other chores and obligations, it’s common for one spouse or partner to take the lead on taxes, budgeting and important financial matters. If you’re not the one taking charge, that doesn’t mean you can put all thoughts about money on cruise control. 

While we definitely don’t wish for the worst to happen, divorces, medical emergencies and sudden deaths happen every day. Should your money-savvy partner not be there to take control of your joint finances, you’ll need to be able to take the reigns and manage them on your own. Both partners should have a good understanding of your joint budget and know where to access your emergency fund. 

In addition to discussing money openly with your partner, it’s important to work as a financial team. Managing money can be a stressful task; while it might not be your biggest strength, a helping hand may be greatly appreciated!

#8 – I can put my emergency fund in stocks or a CD, or I can keep my emergency fund in my regular savings or checking account.

We get it – you’ve worked hard to build your emergency fund. It may seem too complicated to store it in a separate place from the rest of your money. It also might feel like a waste to keep it out of a money-making opportunity, such as a Roth IRA, stocks or a CD. 

Your emergency fund was built to be used in case of a true emergency. It needs to be ready to go at a moment’s notice. Pulling cash that you’ve invested can take time, and a short-notice withdrawal sometimes comes with additional fees. Additionally, keeping your emergency stash in the same place where you keep your “everyday use” money increases the risk that you might spend it accidentally. 

You can still keep your money liquid while earning some interest. Consider putting your emergency fund into a high yield savings account.

#9 – Self-care costs money.

While taking care of yourself isn’t necessarily a new concept, the term “self-care” has become increasingly popular. Unfortunately, it’s often misinterpreted and used as an excuse to splurge on an irresponsible purchase, make unhealthy choices or avoid taking care of something important. 

Ultimately, self-care is an act that contributes to your mental, emotional or physical well-being. It also doesn’t have to come with a price tag! Some free and nearly free self-care examples include guided YouTube yoga videos, catching up with a good friend, going on a walk in the park, checking out a good book from the library or going to bed an hour early. There are plenty of free things you can “treat yourself” to that will help you feel like a million bucks.

#10 – I’ll never be able to fix my credit score.

If you’re being held back by a low credit score, it may seem impossible to fix. Fortunately, you should be able to improve your credit over time by incorporating some new habits and strategies. Disputing inaccuracies in your credit report, paying down your outstanding debts, and building a history of on-time bill payment can all help to boost your credit.

#11 – It’s too late to reach my financial goals.

If you’re older, it may feel impossible to work your way out of debt, save for retirement or build your own business. Good news: there’s no time limit on getting started. 

“It’s never too late to change your financial destiny,” Certified Financial Planner Marguerita Cheng writes in her piece for Business Insider. “A few slight changes now can have a significant impact on where you’re at in five, 10, or 20 years.”
No matter your age, you can still make adjustments to your retirement contributions, pursue a business or work your way out of debt.

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