Everyone has an opinion about money and how it should be spent. Ever hear that you should avoid debt at all costs? Or that home ownership should be your ultimate financial goal?
Well, those are common beliefs, but they aren’t necessarily true for everyone.
Here, we look at five all too common money myths.
1) Everyone should aspire to own a home
Home ownership is sometimes considered to be synonymous with the American Dream. Many people swear by the tax benefits too. Still, it’s not for everyone.
If you plan to move over the next several years or if you don’t have the money to cover a down payment and emergency repairs, then homeownership might not be for you, at least not right now.
After the housing crisis several years ago, many Americans started to rethink their priorities and have chosen to rent or have bought a smaller, more affordable home over a McMansion.
2) All debt is bad debt
Not all debt is created equal.
Student loans and mortgages are technically debt, but they can increase your earning power or net worth over time. These forms of debt often carry a lower interest rate than credit card debt and unsecured loans.
Plus, you may be able to deduct the interest on your taxes.
Still, debt is debt and it needs to be paid off eventually. Student loans and mortgages should be reasonable relative to your income and other expenses.
3) Giving up lattes will solve your money problems
Personal finance experts love to attack people’s latte-a-day habits, which is really a symbol for all those little purchases we make on a daily basis without question.
True, if you’re spending $150 per month on coffee ($5 x 30 days), then you could save a little cash by cutting back or making your coffee at home.
But even brewing your own coffee still involves costs, and there are often bigger picture decisions that could save you even more money – and require less willpower.
Maybe instead of skipping Starbucks, you could cancel that gym membership or cable TV subscription you rarely use. Or you could get a roommate and downsize your housing costs.
Lattes are probably not your biggest expense.
4) Your spouse’s credit score impacts yours
Marrying someone with a high or low credit score does not automatically raise or lower yours. Regardless of marital status, everyone maintains his or her own credit report and score.
Now, if you and your spouse apply for a car loan or a mortgage together, then the other person’s score does impact your potential interest rate. And if you become an authorized user on your spouse’s credit card, it could help boost your score.
On the other hand, missing a payment on a cosigned loan could lower your credit score.
But simply saying “I do” does not directly influence your creditworthiness.
5) Bankruptcy will fix all your money woes
Alas, bankruptcy is not a cure-all and typically does not erase debt such as student loans or child support. There are different types of bankruptcy filings:
- Chapter 7 discharges some debts, while Chapter 13 reduces or reorganizes debts.
- Chapter 11 is typically used by corporations to reorganize debts. In Chapter 7, you may lose property such as a house or a car. In Chapter 13, you might get to stay in your home but continue making payments and live very modestly for the next several years.
Either way, the filing itself may cost you a thousand dollars or more and it could be several years before you qualify for an unsecured credit card or a mortgage.
Have you heard of any of these money myths? What would you add to this list?