Financial advice can often contain misguided and disingenuous advice, so it is critical that individuals differentiate fact from fiction when making financial decisions.
Misconceptions and myths regarding saving, investing and money management can stymie wealth creation if we let them. Let’s examine some common financial misconceptions to debunk them.
1. It’s not worth saving if I can only contribute a small amount.
Financial analysts often refer to certain lines of thinking as conventional wisdom. These ideas have long been accepted without question; now more than ever they are being scrutinized more and more closely as potential misperceptions emerge that could prove harmful or inaccurate for one’s finances. This shift could prove positive as some ideas could turn out not be accurate at all or may even prove counterproductive to financial well-being.
Many personal finance myths stem from outdated guidelines that no longer serve a useful purpose, making decisions based on unreliable information unwise and delaying necessary transitions to more modern financial strategies. Recognizing misconceptions is key for making informed financial decisions – the sooner one recognizes these myths the sooner they can be disproved by evidence-based financial strategies.
One common myth about savings is that it doesn’t pay to save even if you can only contribute a small amount every month, which is far from true as any amount saved is better than none at all, and saving can become part of your routine and provide long-term financial security. Furthermore, even with limited income available it may still be possible to save enough to qualify for student loans or mortgages.
2. It’s too early – or too late – to start saving for retirement.
Saving and money market accounts can provide emergency funds, but investing is the key to building wealth over time. An Edward Jones financial advisor can help you sort through myths from reality while devising tailored strategies.
Early saving is of vital importance for young adults. Even though retirement might still be years away, starting now allows the power of compound interest to do its work.
But it is possible to start saving later, provided you make up for lost time. Let’s say, for instance, you begin investing for retirement in your 40s when other financial responsibilities like child-rearing or mortgage loan servicing may have eaten away at most of your disposable income. With patience and consistency you may still reap the rewards of compound interest!
3. It’s not necessary to time the market.
There are many myths and misperceptions that impede savings, investing and wealth-building efforts. From credit cards being responsible for ruining your score to believing you must time the market to build wealth – they all pose financial hurdles that prevent people from progressing financially.
Some seasoned investment experts may boast success stories, but in general it’s nearly impossible to time the market consistently. That means predicting when it may decline or when to reenter once it has rebounded.
Making decisions like these is often costly in terms of taking away from long-term returns, so instead it would be wiser to ride out the market’s ups and downs over a sustained period instead. Remember that no one has ever been able to accurately predict short-term market movements with any degree of precision, so if someone promises you a sure-fire market timing strategy run away quickly! Historically only those offering these tips have made money selling these bogus strategies.
4. It’s not necessary to invest a lot of money.
Building up savings accounts and an emergency fund are important tools for handling unexpected expenses, but alone are not sufficient to build wealth over time. That is why investing is integral to reaching financial goals like purchasing your first home, planning the wedding of your dreams, completing travel bucket list destinations or ultimately retiring comfortably.
Research demonstrates that investing in higher-yield assets can produce greater returns over time – and you don’t need a sizable sum upfront to start reaping those benefits!
Conventional wisdom can be valuable and beneficial, but succumbing to outdated financial philosophies or myths could have long-term repercussions that stymie your personal finance growth. CNBC turned to a panel of personal finance experts in order to disprove some common money myths.