Many of us have some preconceived notions about money; whether those beliefs have been passed down to us by family, are clichés we’ve heard along the way or simply our own assumptions. My guess is, some of these beliefs are actually money myths.
“Easy come, easy go” is one that immediately comes to mind. Is money really easy to come by? I suppose in the sense that money comes from work and there’s plenty of work to be done out there. But we all know that hard work isn’t necessarily rewarded with a commensurate amount of money, nor does there seem to be an adequate number of high-paying jobs available nowadays. So no, I wouldn’t definitively agree that money is easy to come by.
As for the easy go part, I think most of us have heard, or even uttered ourselves, “I don’t know where it all goes!” It’s all too easy to spend money. Even when you’re doing well with saving, it seems Murphy’s Law rears its ugly head and some situation pops up that sets you three steps back.
We were able to set aside a little money this month by not eating out much and watching our miscellaneous category spending. Spring is a difficult time for us to manage much saving as we don’t escrow our property taxes (why should the bank earn interest on my money, right?), so that payment is due. It’s also when our homeowner’s policy, auto policy and my husband’s term life insurance annual premiums are due. All of those usually take any extra income from the month and then some from savings to cover the payments. I was thrilled to be able to put away even a few hundred dollars.
Well, lo and behold, the furnace went kaput over the weekend. Thanks to fabulous neighbors who own a wonderful plumbing and heating company (shout out to Level Green Plumbing and Heating—if you’re local to Southwestern Pennsylvania, look them up!), we got it fixed quickly and affordably, but it still wiped out what we had managed to save. Ah, there’s always next month, right?!
So, what are some other money myths floating around out there? Here’s a few that I came up with…
So, you’ve joined the high-mile club (not the mile-high club—get your mind out of the gutter!) and turned over 100,000 miles in your vehicle. Time for a new car, right? Not so fast! 100,000 miles is not an automatic expiration date. In fact, experts say today’s cars are built to last for 250,000 miles with routine maintenance. Now maybe your particular vehicle is prone to breakdowns in which case frequent repairs may make it unreasonable (and unsafe) to continue driving. But even if you’ve had one costly repair, it is much cheaper than taking on a car payment or dropping a large chunk of money on a new car. Just remember that the number on the odometer shouldn’t be the thing that tells you it’s time for a new car.
You may think they’re synonymous, but they’re not. Thrifty literally means being wisely economical. It means looking at something’s value and factoring in quality, not just price. Cheap means low in cost. There’s no consideration of value or quality, just the act of securing something for the lowest possible price. Saving money on a purchase by evaluating its quality and worth to get a wisely economical price does not make one cheap—it makes one smart.
Skipping the overpriced restaurants or choosing the strip steak over the filet is thrifty. Stiffing the waitress to save 18% on your bill is cheap…and downright rude.
This was one that I believed when I got my first credit card. I thought my usage would only be reported to the credit bureau if I was carrying a balance, so I intentionally carried a small balance month to month thinking I was helping myself establish a score. Turns out, I was only helping the credit card company by paying those pesky finance charges.
Credit bureaus want to see that you can use credit responsibly and they do so by evaluating your utilization with a balance to limit ratio. If you have three cards, each with a $1000 limit and you have $500 charged against each of them, you’re utilizing 50% of your available credit. It is generally recommended that you not use over 25% of your available credit at any given time. If even one of your cards is utilizing more than 25% of your credit limit, it may have a negative impact on your credit score, as they calculate both overall and individual utilization. So forget carrying a balance, keep your utilization under 25% and your credit score will be just fine (assuming you pay on time which is the most important factor)!
With the advent of frequent flyer and hotel loyalty programs, we may often feel like our loyalty is rewarded. After all, it’s cheaper to keep a customer than it is to acquire a new one, so why wouldn’t a company reward a loyal customer with benefits or discounts? But loyalty and complacency can cost you money in the long run.
Cable and satellite, auto and homeowner’s insurance, and cell phone companies are all examples of businesses that may offer their lowest rates to new customers versus loyal ones. An easy fix? Call them and ask for customer retention. Make your case for a discount: remind them of how long you’ve been a customer in good standing (assuming you are current on your bill and they never have to hound you for payment), share competing company offers, and be prepared to say “sayonara!” if push comes to shove.
Life insurance is intended to provide financially for those who depend on you in the event that you are no longer here to do so. If you’ve built up enough resources in your estate to care for your dependents, or your dependents have grown and would then no longer be considered your dependents, then you have no need for life insurance.
If you do decide you need life insurance, it’s almost always a better option to go with a term policy over a whole life policy. The premiums are much more affordable as there’s no accumulated cash value in the policy. Assuming a healthy (i.e. nonsmoker, healthy weight, etc) and nonhazardous (no tight-rope walking over the Niagara Falls!) lifestyle, a 35-year-old female would pay, on average, $60 per month for a 20-year, $1,000,000 term policy. If she passes within those 20 years, her family gets $1,000,000 to provide for their needs. If she passes after, they get nothing, but it’s assumed by then that her estate would have the assets needed to provide for their care. And if at any time she doesn’t think the 20 years will cut it, she’s offered the opportunity to renew the policy for a longer term (at an increased rate).
The same $1,000,000 whole life policy would cost her a whopping $731 per month. She could easily secure a term policy and invest the $670/month difference herself in an index fund and likely come out a millionaire, in her living years, while still providing her family with the security of an insurance payout should the unfortunate happen.
As Dave Ramsey says, investments are investments and insurance is insurance. Don’t mix the two.
Misconceptions about money abound; I’m sure you’ve heard quite a few. I’d love to hear about them in the comments!