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6 Personal Finance Myths Debunked

The Huffington Post logo The Huffington Post 19/02/2016 Pauline Paquin
RICH AND POOR © Fotokia via Getty Images RICH AND POOR

This post was originally published on The Savvy Scot

The power of the majority always rules. The following 6 myths are considered as true by most people - just ask your neighbor about any of them and you'll see. It is time to debunk them one by one and give you the real truth about the matter. Many have fallen under false premises and we are eager to liberate you from the shackles of financial deceptions.

1. Credit Cards Should Be Avoided at All Costs

Credit cards are not bad. The way you use them is what makes them either good or bad. Credit cards make us feel we have cash available - often, at times we don't. Thus, in some sense they should not be embraced wholeheartedly and mindlessly. There is a good side to credit cards, though. They can provide you with cash in urgent cases. Plus, you can use them to improve your credit score by using them wisely. On top of that, some of them offer interesting rewards, discounts, bonus points, and travel insurance!

2. Want to Cash In Huge Profits? Invest in Gold!

With the economic instability faced by the world today, many experts claim that buying gold is the best investment you can possibly make. It's true that gold is a "safe haven" in times of financial crisis. However, those same experts also say that you can actually lose your money if you don't sell at the right time. The bad news is they actually state no one can know when exactly is the right time! Gold is extremely volatile. Thus, you can see it skyrocket during crisis times just as you can see it suddenly fall when bad times pass. The only downside is we humans are bad at predicting economic events such as these - and this has been proven! Investing in a diversified portfolio will give you more steady earnings without the high risk linked to investing in precious metals alone.

3. If You Aren't Rich You Don't Need a Last Will

The BBC reported a few years ago that only 3 in 10 people have a will and that the UK Treasury earned over £53m from people who didn't write one (source)! The term for it is intestate - without a will. Not writing a last will means that the state will decide what to do with your estate after you pass away. Writing a will costs £80 and the most important thing is that it will give peace of mind to your loved ones. Experts even recommend writing a will even if the person will only indicate how the resources should be used for his or her burial.

4. You Should Start Saving for Retirement at Age 40

In the UK, only 48% of employees and 18% of self-employed people are currently saving for retirement according to newspaper The Guardian (source). Many are relying on the state pension which will award them with around £8,000 when they retire. If you live in the UK, you know this amount isn't enough to live decently. Young people think retirement age is far away- and they are right. However, your retirement fund also takes lots of time to grow. For instance, if you start saving £200 from age 20 until retirement age (supposing you retire at age 55, as allowed by the new legislation) in a fund earning 7% annually, you will have a nest egg of more than £360,000. If you wait until age 40 to do this, you will only be able to save a bit over £63,000. Don't let time fool you, and start building yours as soon as you get your first job.

5. If You Earn Lots of Money You Are Rich

Let's face it, most of us have ingrained into our subconscious the making-lots-of-money mentality - anyhow that's how society pretty much formatted us. What they don't tell you is that you also have to look at your assets and liabilities to determine if are truly rich. Spending all of your six-figure salary doesn't make you a rich person. Your net worth, or wealth, is calculated by the sum of all of your assets minus your total debt. Thus, it is possible for someone who makes an average salary to be richer than a high-earning employee. Being rich is a matter of looking at the "big picture", not just how much you are earning on an annual basis.

6. Cash is King

Sure, paying with cash is the best way to be debt-free. However, most people don't have the needed cash in order to purchase a home, one of the most important if not the most important asset you can own. Thus, building your credit score is also needed in order to qualify for a mortgage. If you build an excellent credit history you can also get lower interest rates on loans. Using debit cards is also risky as data breaches have left many people empty handed - and with empty pockets too. Credit cards are more secure and are more protected in case of fraud.

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