In continuing the series on debunking these most popular and 12+ pages being too much for one post – here is part 3 of 4 on the series Debunking The 25 Most Outrageous Money Myths. Part 1 can be found HERE. Part 2 can be found HERE.
13. Savings Accounts Save Money
Having money in a high yield savings account or MMA for emergencies is a good idea. But if you are looking to save money or make your money work for you, a savings account isn’t likely going to get there for you.
First, you have to look at what you are paying out in interest rates. For example, if you have a student loan with a 5% interest rate and a savings account making 3% interest rate, your savings are costing you approximately 2%. You would be better off paying off that student loan with your savings account.
It goes the other way around too. If your debt has less of an interest rate than your savings, your money is working better in the savings. But with today’s interest rates being so low, your debt is probably higher than the amount of interest you are earning on your savings account. That means you are actually losing money.
14. The Stock Market Is Dropping With My Money, So I Am Selling!
I wrote a whole post on this exact phrase HERE, but to rehash a bit…
When the stock market goes down, keep your money in it unless you’re right at the brink of retirement. The market goes up and down, that’s just what it does. Know your tolerance. Many seasoned investors consider a decline in the market to be a “sale” and take advantage of the opportunity to pick up some valuable investments that are only experiencing a temporary dip.
15. I’m Too Young To Invest, I Have Plenty Of Time To Worry About Retirement Later
The younger you are, the more years of compound interest you have ahead of you. Compound interest is your best friend, trust me.
When you start saving young, you’ve got a long time to let that money sit and simmer. Even if it is just a few bucks a paycheck, you’re getting in the habit of saving, which is nearly as important.
It’s true that some brokerage firms require you to have a minimum amount of money to invest in certain funds or even to open an account. However, if you wait until you meet one of these minimums, you may get frustrated and have a harder time reaching your goal.
These days, it’s easy to start investing with very little money thanks to the proliferation of online savings accounts.
While traditional bank savings accounts generally offer interest rates so low that you’ll barely notice the interest you accrue, an online savings account will offer a more competitive rate based on how the market is currently doing. In 2007, it was common to find online banks offering 5% interest. 5% is a pretty good return on your low-risk savings account investment when you consider that stocks historically return an average of 9-10% annually.
Also, some online savings accounts can be opened with as little as $1. Once you’re in a position to start investing in stocks and mutual funds, you can transfer a chunk of change out of your online savings account and into your new brokerage account.
Alternately, you could open a brokerage account with minimal funds through one of the online trading companies that have cropped up.
However, this may not be the best way to start investing because of the fees you’ll pay each time you purchase or redeem shares (generally $5 – $15 per trade). While these fees have been drastically reduced from when you had to trade through human stockbroker, they can still eat into your returns.
16. I’m Not Going To Credit Counseling, It Is Bad On My Credit That I’m Trying To Save!
The current FICO formula ignores any reference to credit counseling that may be in your file. That’s been true for the last three years, after researchers at Fair, Isaac, the company that created the FICO scoring system, noticed that people getting credit counseling didn’t default on their debts any more often than anyone else.
However, your ability to get a loan could still be hurt by credit counseling. Your current lenders may report you as late, because you’re not paying what you originally owed or because your credit counselor isn’t sending your payments in on time. Late payments do hurt your credit score.
Lenders consider other factors besides credit scores in making their decisions, as well. The factors they look at can vary widely. Most want to know your income, for example. Some want to know how much savings you have or whether you’re a homeowner. Some will find credit counseling disturbing, while others see it as a good sign.
If you plan to get a mortgage soon, and you’re not already behind on your debts, it’s probably smart to steer clear of credit counseling. If you’re already in trouble, however, a good credit counseling agency might be able to help you get back on track.
17. The Only Way To Get Rich Is To Catch A Break
Again a generalism of the entire population. Yes, some people get lucky when they strike it rich, and some are giving money through rich relatives (but most of them STAY rich, even when they’re not financially savvy because you can BUY people to watch your money if you have enough of it) but that’s not the case with the remaining 80% of the people that become wealthy.
For the 80% that earn wealth, it’s not an accident, it’s dedication and belief that you’re going to be successful. If you just sit around thinking that your only way to wealth is to “catch a break” at work, you’re most certainly not likely to get that break.
Most of the rich never made it rich at their ho-hum corporate job. They ventured outside of it to find what would make them wealthy. Reach out and investigate other ways to get rich, you may be surprised that you may be able to make your own “break”.
18. If I Refinance My Mortgage, I’m Saving Money
Well, yes, you are initially, but essentially what you’re doing is you’ve refinanced for another 30-year term. This means that if you have already paid 10 years of mortgage, then refinance for another 30, you have basically extended your loan to a 40-year mortgage. Do the math and you’ll see if you are really saving anything.
If you really want to save money, refinance for a lower rate and a shorter term. Your monthly payment may not go down, but your overall repayment may.