The Internet is flooded with advice on personal finance. Still, you can not make decisions based on what you read or see because not all the available information is correct. Below are some common personal finance myths as well as the reasons why you should not follow them.
1. You can invest only if you are rich or have high income
You don’t need to be a millionaire to invest money. Investing is about consistency and the power of compounding. You can create wealth irrespective of how much you earn if you start investing early in life. Save a minimum of 10-20% of your income and invest in mutual funds through SIPs starting with small amounts as low as ₹ 500 per month.
2. Insurance is an Investment
Insurance is not an investment, but a way to protect the wealth that you accumulate in your earning phase. This is the reason why insurance is cheaper when you buy at a young age and becomes expensive by the time you near your retirement age. When you are young, you have life goals, responsibilities and a corpus to build for retirement, this is the time when you need insurance to shield your savings in case of a mishappening.
3. Purchasing a house is better than renting
It is a common belief that buying a house is better than renting one because of the easy availability of housing loans. But if you compare the rent with the EMIs, you will realise that renting is cheaper. It is not a good decision to buy a home early in life and keep paying EMIs for a long period when your income is low. If you invest the same amount in a mutual fund, you can earn good returns over a period and purchase a home later in life without depending much on a home loan.
4. Retirement planning can wait till the age of 40
Most people make the mistake of not planning for retirement till they reach their 40s. It becomes difficult to save much as you age because your responsibilities increase with growing children and ageing parents. Also, you are left with lesser time for your investments to grow. So, start retirement planning early in life when your responsibilities are fewer and you can save more and create more wealth.
5. You don’t need an Emergency Fund if you have a Credit Card
Your credit card cannot replace an emergency fund because both serve different purposes. An emergency fund will help you sustain for a period of minimum 6 months in case you lose a job and should be enough to cover your monthly expenses. A credit card lends you money, which you need to repay and in case you fail to pay, there will be high-interest rates incurred on dues.
6. You should always put your money in a Savings Bank Account
A savings bank account gives the lowest interest on your money and therefore putting all your money in a bank account is not a wise decision. There are many investment avenues where you can park your surplus funds and grow your money. For instance, you can invest in liquid debt funds which are safe, offer better interest rates than a bank account, and can be easily liquidated.
7. Timing the stock market is the key to success
No expert can predict market dynamics accurately. To earn good returns in the stock market, diversify your investments and hold for the long term rather than trading for the short term.
8. Debts are bad
Debts or loans help you build assets beyond your financial potential. If an asset is profitable and gives better returns than the interest you pay on a loan, it is a good idea to take a loan for that asset. Always look at the profitability of an investment and compare the loan interest with the returns.
9. Savings are enough
Savings are enough to start investing and not to secure your future considering high inflation rates. FDs and PPFs are good saving options but cannot beat inflation. Invest your money in different asset classes to earn inflation-adjusted returns in long term.
Avoid these myths to make informed decisions as an investor and start your investment journey with mutual funds.
