Don’t let these 6 misconceptions surrounding personal finance drag you down in your bid to achieve financial freedom.

The term “personal finance” refers to all areas of personal money management, often with an extended focus on saving and investing. Budgeting, financing, insurance, loans, investments, retirement planning, as well as tax and estate preparation, are all covered under one roof. The phrase is frequently used to describe the entire industry that offers financial services to people and households, as well as provides financial and investment advice.

The significance of personal and family money management and planning cannot be emphasized enough. For years, individuals and even governments have attempted to instill this practice in the public. They have, however, struggled to do so. This is because there are frequent misunderstandings about personal finance which get repeated in social media and by personalities who have other goals in mind instead of the welfare of the people they preach.

Personal finance is concerned with achieving personal financial objectives through financial management goals, such as having enough money to fulfill immediate financial demands, planning for retirement, or investing in your child’s college education. It all rests on your income, spending, living needs, and personal objectives and desires—as well as devising a strategy to meet those needs while staying within your financial restrictions. It’s critical to become financially literate to distinguish between good and bad advice and make informed decisions with your money and savings.

The following 6 examples are popular misconceptions that have plagued the personal finance field.

Myth #1. Your Income Impacts Your Credit Score

A credit score basically is an indicator of your repayment capability. Before making a loan or giving a line of credit, lenders want to ensure you have money coming in, therefore your salary will be reviewed alongside your credit score.

The amount you owe, your payment history, account types, and activity all play a role in your credit score.

Myth #2. One-Time Activity

Many people feel that if they attend a financial planning session or read a financial planning book, they have completed financial planning.

This is not the case, and financial planning is a lifelong endeavor. It must be carried out systematically over a long length of time.

Personal financial goals, for example, must be set regularly. These objectives must then be changed over time when fresh information about the investor’s earnings and expenses becomes available. Throughout the journey, the goals and the approach to reach them may need to be readjusted and rebalanced numerous times.

As a result, reading a book or attending a seminar is merely the first step; it becomes relevant only after multiple more actions have been taken.

Myth #3. I Can Start Saving for Retirement Later

When you’re 20 years old and working your first full-time job, saving for retirement is probably the last thing on your mind. But it shouldn’t be.

Compound interest means that the more money you save in your twenties, the less money you’ll need to save later.

While you may believe you have all the time in the world or that deferring it will result in higher pay later, keep in mind that, while your income will rise as you get older, so will your expenses. You might not have enough money to save in the future. You should consider saving in other accounts in addition to your conventional retirement funds, especially if you plan to retire early or have other objectives. You should make saving for retirement a high priority and quit making excuses to avoid making plans.

Myth #4. Investing is Risky

The idea that investments are dangerous is just half-true. Yes, some investments can cause you to lose more money than you put in, but that doesn’t mean they’re always structured that way.

Fixed deposits are a form of low-risk investment that can pay up to 4% in interest if you choose the appropriate one. Many people also choose to invest in unit trusts and even buy extra properties for both rental yield and successful resale, but it’s always a good idea to conduct your research before making any form of investment.

If you’re interested in learning more about investing, the internet can be a great place to start (but be careful about making major financial decisions based solely on online sources).

Hiring a personal financial adviser, if you can afford it, is also a smart approach to identify investment options that meet your risk appetite. Typically, advisers would chart your investment personality and make product recommendations for you.

Because your money’s purchase power diminishes over time due to inflation, not doing something productive with it (i.e. investing) is a definite way to lose money.

Myth #5. Credit Cards Are Bad and Only Lead to Debt

Credit cards can be detrimental, but they can also be beneficial. It is entirely dependent on how you want to use them.

If you are careful in paying off your accounts in full, the reward points and cashback you receive might help you save money by avoiding interest charges.

If you have huge, unexpected payments or purchases, a credit card is also an excellent financial management tool. Do you have a hospital bill to pay? Put it on your card, and then choose a 6-month 0% balance transfer. Not only do you not pay interest – which is beneficial if you have little to no money in the bank – but you also do not pay any fees.

It’s also useful if you’d rather retain the emergency funds on hand for any other unforeseen circumstances.

Myth #6. No Debt Equals Good Debt

While there are some individuals who vow against debt, it’s crucial to remember that if you want to use the system, you must be a part of it. That doesn’t mean you have to be in a lot of debt, but you must prove or have demonstrated that you can handle it to have a strong credit score and access most traditional lending.

Conclusion

Kick out any misconceptions you’ve had about personal finances.

It’s always best to get your personal finance advice from legitimate sources, like an accredited personal finance advisor. It may be hard at first, but once you get into the groove of making personal finance a lifelong pursue, it becomes easier to maintain discipline over your finances.

 

What is the most important lesson you have learnt so far from this article? Let us know in the comments down below.