Monday, 8 May 2017

5 Biggest Money Misconceptions

By Miriam Caldwell
Updated March 29, 2016
The way you manage your money now will impact you in the future. Many people feel that when they are in their twenties, it means that you do not need to worry about your money or what you are doing, because you still have a lot of time to clean up any mistakes and get serious about things before you reach retirement. It is important to handle your money the right way from the beginning. Do you believe any of these five money misconceptions?

1  A Good Salary Means You Are Financially Secure

One common misconception is that once you make a good salary, you will be financially secure. Even with a good salary, it can be difficult to pay the bills. You can always spend more than you earn, and if you are not budgeting and working with a financial plan, you will not be safe. Even if you are avoiding debt each month, you need to be working on building an emergency fund in case you lose your job or cannot work for some reason. A good salary is only part of being financially secure.

2  Everything Will Work Itself Out

If you take the approach that everything will work itself out, you may end up several years from now and realize that you have not progressed toward your goals. If you are not actively planning and saving for life’s big events, then you will not be ready when it comes time do them. You may not be ready to purchase a home when the time comes or you may run up debt, which can get in the way of doing other things. It is essential that you have a financial plan that you can follow. This plan will make it possible for you to still enjoy your twenties while moving forward financially.

3  Budgets Take Too Much Work And Don't Really Help

Another common misconception is that budgeting takes too much work and the do not really help you change your situation. The first few months of budgeting can take an extra effort, and it takes that long to create a budget that actually works for your situation. Most people give up budgeting after a month or two and so they do not see the success that is possible by following a budget. A budget can help you stop worrying about money all the time, and help you reach your goals much more quickly. You need to have a budget no matter how much money you make.

4  I Can Start Saving Later

The sooner you start saving the better off you will be financially. The money you save in your twenties will help you so you do not have to save as large of a percentage of your income when you are older. Although your income will increase as you get older, if you have a family, so will your expenses. You may not have the money available to save in the future. It is important to make saving regularly a habit now so that you will have the money you need now. In addition to your basic retirement accounts, you should think about saving in other accounts, especially if you want to retire early or have other goals you want to accomplish. You should make saving for retirement a priority and stop using excuses to stop yourself from planning for your future.

5  I Don't Need to Worry About My Debt

Another common misconception is that you do not need to worry about the amount of debt you have as long as you are able to make your payments each month. This mentality makes it easy to let debt creep up on you, and then you suddenly find yourself in a situation that is difficult to get out of. Your debt-to-income ratio can show you how serious your situation is. It can also affect how much you are can spend on a home in the future. It is important to seriously think about your situation and make conscious decisions about taking on additional debt through loans or by using your credit cards.

source - thebalance