Shedding Some Light On 5 Myths Of Money Management

Myths have grown over the years about money management, myths about everyday finance that many people have come to accept as fact. It’s time to shed some light on the five most popular myths.

1 Money Myth #1: Not Enough Money To Start Saving

Putting a little bit of money aside and letting the compound interest grow is one of the major cornerstones of money management. Yet people still think they have to put aside a big chunk of money to get any payback. Start by regularly putting a few dollars in an account that pays compound interest and leave the account alone. Even if you find you have to pay taxes on the interest, you will still come out ahead.

2 Money Myth #2: A Myopic Focus On The Monthly Payment

Whether the monthly payment is for a car, a home or for paying down a loan, many people focus solely on the amount of that monthly payment and ignore other fundamental issues when budgeting. While the monthly payment should be an amount you find reasonable, you should also consider what the interest on this amount comes out to, or how many months the payments will continue. Understand all facets of monthly payments when figuring total costs to truly understand money your finances.

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3 Money Myth #3: Minimum Payments Are Good Enough

The minimum payment amount is the way credit card companies and banks take more of your money. In general, the minimum payment barely covers the interest accrued and chips away far too slowly at the principal owed. Paying only the minimum amount on a $1000 loan would keep you paying every month for over a decade. If you pay double the minimum amount, you will ultimately pay less interest and you could be debt free in less than half the time.

4 Money Myth #4: Carrying A Balance Improves My Credit Score

This myth is simply that, a myth. The amount you owe on your credit card may negatively affect your credit score if you’re carrying too much debt for your income, but carrying an unpaid balance every month has no effect whatsoever on your credit score. The actions that can hurt your credit score are missing a payment, making late payments and paying less than the required minimum payment.

5 Money Myth #5: High-Interest Debt Should Be Paid Off First

This myth is the most difficult to disprove. Yes, reducing high-interest debt is an action that seems to makes the most sense financially. However, personal finances also have a psychological side. People need to see some positive result from their actions in order to continue. Chipping away at a huge balance that never seems to grow smaller can be a task too daunting for most people. Start by substantially paying off a debt with a balance that could be cleared within a year, even if the interest rate is not the highest of all your debts. Once you accomplish a small victory over a small debt, it’s easier to move on to the larger debts.

Myths of money management abound. Be aware not only of these five, but also of many more that can leech cash away from you and leave you less money to achieve your dreams. Knowing the facts will help you to achieve your financial goals.

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