Let’s bust five big money myths
Thanks to the rise in 'Finfluencers', #FinTok and self-help celebrities, money advice is everywhere you look. At its best, improving your financial literacy is a good thing. After all, rarely are the basics of personal finance covered at school. But at its worst, the Internet is awash with financial myths, falsehoods and misleading information. No matter how financially savvy you think you are, chances are you're guilty of believing a few of these money myths. Here are a few common misconceptions.
Myth #1: Rent money is dead money
Homeownership is still the great Australian dream - a marker of economic security and can be a net-worth builder. But even in the face of soaring house prices, the biggest purchase of your life isn't something to rush. First up, deciding whether to switch from renting to owning a home involves more than simply comparing your monthly rent to the monthly mortgage repayments. Alongside the mortgage repayments, there are ongoing maintenance and home improvement costs, rates, and body corporate fees for apartments. When there's a leaky roof or the aircon unit dies in your rental, you call the landlord. But when you own the property, those expensive costs are entirely on you. Bottom line: Don't let FOMO rush you into the property market, as this could end in financial stress. Buy if you're ready and capable of making the repayments. There's no failure in choosing to rent.
Myth #2: Credit cards are better than a personal loan
Zero-interest credit cards are appealing, and it's not uncommon for we Aussies to have few accounts owing money. But multiple credit cards can become difficult to manage if debt starts to creep out of control. Life happens - the car breaks down, you go on holiday, school fees are due, your best friend gets married, or you become pregnant - all of a sudden, repayments can be easily missed. Juggling multiple cards and revolving debt can make it very hard, if not impossible, to get on top of your finances.
When the average standard credit card rate in 2022 is 19.94%, in this case, consolidating your debt with a SocietyOne low rate personal loan might save more money in the long run by reducing the amount of interest and fees across multiple high-interest cards. When all your debt is in one loan, it's also easier to manage repayments. Debt consolidation to a SocietyOne personal loan is typically available with terms between 2-7 years and rates as low as 5.45% p.a*. We charge a one-off establishment fee included in your total loan amount. There are no monthly fees or early repayment fees.
Myth #3: Owing a credit card is the only way to build a good credit history
Building a credit history matters - without a high credit score, you have no evidence of your ability to repay loans and you may not be approved for credit by a lender. But owning a credit card isn't the only way to build a history of financial management. Having a mobile phone or utility bill in your name, staying on top of your bills and repayments and limiting the number of credit enquiries you make are top ways to help you build a good credit rating. Here's a practical guide to improving your credit score.
Myth #4: A bit more money will make you a bit happier
It's easy to think that if you got your hands on a bit more money, you'd be happier. But here's the thing: we humans are never satisfied. Once our basic human needs are met - like shelter and food - a pay rise that can fund a better car, the latest gadget or a bigger house doesn't generate more happiness. Countless studies reveal you might feel a burst of joy in the short term, but you quickly adjust to your new wealth and everything it buys you. The more you make, the more you want, trapping you on what economists call the 'hedonic treadmill'. Next time you find yourself yearning for more 'stuff', keep in mind that investing in experiences is proven to increase happiness.
Myth #5: High income earners are wealthy
In Australia, people who earn more than $180,000 a year are in the top tax bracket. But even if you make enough to fit this bracket, it doesn't necessarily mean you are 'wealthy'. If you spend all of your income, you will not build wealth.
Luckily, you can build wealth on any income. In this case, a middle-income earner who puts 10% of their pay into savings or investments can grow their wealth.
There is no magic pill for managing money - healthy cash flow will take a lot of effort, some discipline and clearly defined goals. Sticking to a budget, no matter your income will help you build wealth. Here are a few budget strategies to get you started.
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