Felt an itch recently? If it was on your right palm, you could be on the verge of good news, usually related to the inflow of some money. At least that’s the popular myth that some people in different parts of the world still believe in. On the other hand (pun intended), an itchy left palm is supposed to signal an outflow of money which you could try averting by rubbing that palm on wood, according to an old table..err..tale!
And did you ever receive a wallet or purse as a gift with some cash tucked inside to trigger further fortune in your money-holder? It’s more than likely that your gift-giver subscribes to the superstition that money attracts money.
With a myriad of myths floating around, it can be hard to ascertain which money-related advice carries merit. When it comes to personal finance though, you may want to think twice before listening to a well-intended advice passed from your grandmother’s neighbour’s son who once worked in a bank.
Read on as we bust 6 money myths, so that you can distinguish between fallacy and reality, and are able to see through the cliches.
1. “Cash is good…credit cards are trouble”
Spending cash seems so much simpler. You spend whatever is in your wallet. No temptation to overspend. No banks hounding you to pay up. No interest accumulated. And we’ve all heard a credit card horror story. Someone who splurged and lived in a credit bubble, eventually racking up a sum that grew into a financial monster which ruined his/her life.
But credit cards themselves don’t cause huge debts. It’s the owners who use them recklessly, lacking the ability to manage their card usage and payment properly. A credit card is very useful when you know how to optimise its benefits.
In Malaysia, this includes cash back incentives, zero interest instalment plans on big purchases, points collection for redemption and exclusive retail discounts for card users among several other perks. You can review your monthly spending in a consolidated credit card statement.
Plus, if your card is stolen, as soon as you cancel it, the company will expedite a replacement card. But if your wallet full of cash is gone, then there’s no remedy.
Provided you stay in control of your spending and utilise the card features to your advantage, a credit card can be a better friend to you than cash.
Read more: 6 Smart Credit Card Habits for Youngsters
2. “A good salary is equivalent to better finances”
Despite popular belief, you could earn a good salary and still struggle to pay all your bills. It’s common for people to spend more than they earn, thinking they can afford to upgrade to a better car or splash out on more extravagant meals. But at the end of the month, they find that the amount which flowed into their bank account flowed right out again.
As income rises, so can debt. Even if you’re prudent enough to avoid loans and splurges, you’ll need to save for an emergency fund (find out how to build one) in case of unexpected medical bills, car repairs or even your child’s education (here are some tips to build a fund for your child’s education).
A good income definitely helps but remember that it’s only one step towards achieving financial security.
3. “You must earn an X amount of money by a certain age”
Have you heard someone (perhaps your own mother) mention out loud that so-and-so neighbour’s son or daughter is earning X amount? And that X amount, in all probability, is multiple times greater than your salary. Worse, the neighbour’s kid is a year younger to you!
Some people feel they know exactly how much money one should be making at different stages of life! No prizes for guessing, but there’s no such thing, and you should actually be well-advised not to fall for such misconceptions and demotivate yourself.
It’s great to set yourself a target income to achieve by a certain age and work towards it. Just avoid falling into the trap of comparing yourself negatively to your peers with higher salaries or let others judge you based on what you earn.
Read further: 10 Smart Tips to Get Promoted at Work
4. “I’ll start saving later, there’s still time”
If there’s one lesson we can all learn from the ‘Oracle of Omaha’ Warren Buffett, it’s to start early. The world famous billionaire-investor started investing at the age of 11 because he understood quickly that the longer a sum of money is given to growing, the more interest it earns over time.
Even a modest amount, when allowed to increase at relatively low rates but over long periods of time, add up to considerable sums. You can never be too early, but leave it too late and you’ll miss the big boat! Waiting another 10 years can lead to regretfully smaller returns than had you started earlier.
With your financial future at stake, don’t postpone setting and meeting your savings targets. Time will help your money grow through the power of compound interest.
Read further: 4 Wise Things to Do with Your Salary
5. “You need lots of money to be an investor”
Who said that only people with expensive cars and who wear suits to work can invest? Most people don’t realise that anyone can invest — yes, even you. Perhaps it’s those business news stories we hear sometimes highlighting millions of ringgit which gives the average Malaysian the intimidating impression that investments only involve sums with many zeros.
In fact, you don’t need thousands of ringgit or to be a whizz at maths. Even as little as RM100 can kickstart your wealth-building journey, plus there are easy ways to invest your money.
You also need one more thing: financial discipline. If you’re going to invest RM100 every month in a unit trust, for example, keep to the plan and create reminders if necessary.
Once you’re more comfortable with the habit and have learned more about investing, you can step up your strategy and perhaps one day rise up to the super advanced Robert Kuok level. For now, the important thing is just to get started.
Read further: How Investment-Ready Are You?
6. “Paying rent is a waste of money, buy a home instead”
You might have heard that renting is akin to throwing money down the drain. And that your rent money could be better used to pay off your own home mortgage instead of someone else’s. Plus, having your own home comes with long-term benefits. This conventional wisdom does carry merit, but it still can’t be a blanket rule for everybody to abide by.
It requires years of planning to be able to smoothly pull off probably the biggest investment of your lifetime. And paying the monthly home loan instalment is only a part (albeit a major one) of the entire story. You should also consider the numerous other costs involved — a minimum 10% of your property cost as down payment, interior decoration isn’t cheap, maintenance costs, legal fees and/or agent’s commission, so on and so forth.
It’s not necessary that every boy and girl in their mid-20s or early-30s can afford all of it. Going ahead with home-buying plans without proper preparation can lead to considerable financial and psychological stress in the future.
Renting in also comes with other benefits that may work for a lot of people. Freedom to move around without hassle according to the demands of your career, or freedom to stay according to your budget and affordability, are things that shouldn’t be brushed aside.
Regardless of whether you rent or buy, experts generally advise spending no more than 30% of your monthly income on housing.
As such, don’t blindly follow the “you must buy a house now” myth, instead start researching and planning if you think it’s time to take a plunge. To start with, read our blog on must-do’s if you’re planning to buy a house, apart from useful tips for aspiring home loan applicants. Also, don’t forget to check out some of the top home loan options in Malaysia.
Before you go
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