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The management of personal finances is something that most of us learn in bit parts. Unless our parents took it upon themselves to explain the ins and outs of financial management, managing this side of our lives is a constant learning curve.
As a result of this, financial knowledge across the general populace is… well, less than ideal. People learn what they have to learn to get by, but ignore the ins and outs that can make a real difference to your financial situation. In this atmosphere, it’s inevitable that certain myths have the ability to rise to the surface. These personal finance myths, that hundreds of thousands of people believe to be true, can be incredibly problematic when it comes to financial management.
So, it’s time to bust the myths to help ensure that your financial management is always as good as it can possibly be. Here are four of the most common myths, as well as an explanation on why these “common knowledge” sentiments should actually be ignored…
MYTH: People with excellent credit scores don’t have credit cards or debt
REALITY: You need to have credit cards, loans, and even debts for a good credit score.
The reason for this is simple: your credit score is a reflection of how good a customer you have been in the past. Creditors use this to judge how good a customer you will be in the future. If you don’t have a financial history — such as a credit card or debt — then they can’t judge if you’re a good customer or not, because there’s no track record on which you can be judged. Using a credit card sensibly is the best way to maintain good credit; read through credit cards reviews to find a card that works for you, use it for basic purchases, and pay it off in full every month, and your credit score will blossom.
MYTH: Debt is always bad
REALITY: Debt can be bad, but it can also allow you to further your life in a way that would otherwise have not been available to you. Debt can be beneficial if the debt was incurred for a specific purpose, such as a car to allow you to seek work with a longer commute, or funding your education. If debt is productive and manageable, then it isn’t inherently bad.
MYTH: Pay off highest interest debts first
REALITY: Paying off the highest interest debts may be beneficial in a financial sense, but research has indicated that such a strategy isn’t as useful in a psychological sense. Instead, you should pay off the smallest debts first, as this helps you to feel like you’re making more progress with your debts, and this helps you to focus.
MYTH: Budgets aren’t necessary if you’re financially secure
REALITY: Budgets are necessary for everyone, and can ensure that those who are financially secure stay that way. Learning to budget is one of the most useful personal finance skills you can learn.
In conclusion
Now that you know the truth behind these common myths, the management of your own personal finances should be a breeze!
