Advice from Mum and Dad is something we carry with us like the bible in our minds. Being “conservative” with cash when you’re young is smart, for example, but millennials need risk to build long-term wealth.
As much as we trust the
personal advice of these VIPs in our lives, could they perhaps be mistaken
about money?
Here
are three big financial misconceptions to watch out for.
- Pay others before you pay yourself
Paying money you owe, like
bills, when they are due is pretty much a no-brainer. If you don’t, your credit
could suffer (which means you will suffer too when you aren’t approved for a
loan).
However, it’s very
different to pay other people for other things before you “pay yourself”. How
can you save a little extra money each month if paying everyone is so
important?
“At least after you’ve
covered your debts, you should be paying yourself first, before you shell out
on other spending” said David Bach, author of The Automatic Millionaire.
He suggests regularly
moving approximately one hour a day of your pay, or approximately 12.5% of your
pretax income, into an investment savings account.
- You’re throwing away money on rent
Renting gives you
flexibility as you pursue career advancement but it allows you to avoid certain
financial drains.
Aspiring homeowners tend to forget about the “add on”
expenses of ownership, such as insurance, taxes, home maintenance and sometimes
association costs.
Home maintenance
expenses alone can cost anywhere from 1 to 4% of your home’s annual value each
year. “People often say that buying a home was the best investment they ever
made,” said Neela Hummel, of financial
planning firm Abacus Wealth Partners. “The problem is that their return as
investors is often worse than they think.”
- Avoid credit cards like the plague
“Many young adults are
alarmed by how deeply in debt their parents became and don’t want to follow in
their footsteps”, David Roberton, publisher of the Nilson Report, told the New
York Times.
Establishing
responsibility by opening a card early in life is still instrumental in
building credit history. Good credit history means a good credit score, and
that’s the springboard to obtaining loans for big ticket purchases, like homes.
Even if a home purchase
is years away, building credit doesn’t happen overnight and having good credit
is necessary to refinance a student loan or finance a car.
