5 money myths debunked

By Bessie Hassan, money expert at finder.com.au

Dealing with money and managing your finances can be complicated. This means that we often search for simple or “quick fix” solutions to resolve our financial woes. However, it’s very easy to come across inaccurate financial information and mistake it for fact rather than fiction.

Here we’ve debunked five common money myths to help clear up any confusion.

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Myth 1: All debt is bad debt

This is a very common myth that can be debunked simply by recognising that it takes money to make money. For example, studying at uni and incurring a HECS/HELP debt or taking out a home loan is good debt, provided that you have the ability to repay it. These are financial investments that can build your wealth in the long run.

Similarly, using a credit card correctly and not missing any repayments can help you build a positive credit rating. This is a quantitative reference that banks use to determine your ability to repay debt. A strong credit rating can lead to lower interest rates on future loans and the potential to borrow larger amounts of money.

Myth 2: Refinancing is too hard

This myth is used as an excuse to not refinance, which results in consumers missing out on many savings opportunities. A massive 67% of Aussies found better deals when they switched banks. Remember that banks are in competition for your business, which means that they’re actually willing to offer a better interest rate upon request. If you don’t ask, you won’t get.

Negotiating with your current lender or switching to a new provider can result in lower fees and interest rates, savings that greatly outweigh the effort that refinancing takes. It’s important to compare the rates that various providers offer before making the decision to switch. This also busts the related myth that it pays to be loyal to your bank. Loyalty does not guarantee the best financing deal, which is why it’s so important to shop around to find the best deal yourself.

Myth 3: Checking your credit score will harm your credit file

Inquiries into your credit score do not impact the score itself. Despite this common myth, it’s actually beneficial to check in on your credit score on a regular basis, as it allows you to keep track of yourself and ensure that your borrowing power is still strong. It also allows you to identify when you need to improve your finances to improve your score.

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Myth 4: I don’t earn enough to start saving

Regardless of how much you earn, you should always try to put some money aside for your savings. Most people find it difficult to save because they don’t make it a priority. Savings are an afterthought and they’re only considered if you have enough money left over to add to them.

However, savings can be built up right from the time you start your very first job. It’s important to get into the habit of putting money into your savings account each week or month, in the same way that you pay your bills. Putting money into your savings account stops you from spending money that you don’t have to spend and will help you build towards your longer-term financial goals.

Myth 5: I’m too young to think about superannuation

Superannuation is built up slowly and over a long period of time. The earlier you start contributing to it, the more money you will have in your account in the future.

Some people forget that superannuation is not just for your retirement. Some accounts can be accessed to cover the costs of serious illnesses or accidents, which is very important for young people, as most don’t yet have life insurance. Given that your super is taken from your income automatically, you won’t ever miss the money, as you never actually see it. And the benefits derived from your super when you need it make the contributions worthwhile.

You can’t always rely on money advice from your neighbours or your friends. You should always seek financial advice from a professional and do your own research first before making any serious decisions. The more money myths you bust, the better your future financial situation will be.