The Top 6 Personal Finance Myths Debunked

There’s plenty of misinformation out there about personal money matters. The trick is knowing which statements and claims are bogus and authentic. TV advertisements and internet podcasts create the bulk of the myths, but it can be a challenge to identify outright lies, false claims, and half-truths when they’re disguised as news, academic reports, and legitimate journalism.

What are the biggest offenders in terms of the potential damage they can do to an individual’s financial situation? The most common urban legends and misstatements center on credit cards, life insurance, compound interest, the stock market, cryptocurrency, and home refinancing. Here are details about today’s most pernicious personal finance myths, along with corrected versions of each point.

Save First, Pay Off Credit Cards Later

It’s wise to eliminate high-interest debt before putting money away for a rainy day. Putting money into a savings account usually makes good sense, especially if you are in the habit of setting aside a fixed amount of funds from each paycheck. But for those who carry high interest credit card debt, saving can be counterproductive. The more responsible approach is to use extra money to pay off the cards as soon as possible. After that, go back to saving on a regular basis.

It’s Nearly Impossible to Sell Life Insurance Policies

Policies are easy to sell, and many do so to gain access to instant funds. Every day, people of all ages sell their life insurance policies for cash. Why do they do it? Some discover they no longer have a need for coverage, while others decide that it’s not worth it to continue paying premiums. Regardless of the personal reasons behind the decision, the move is a simple and straightforward process. The best way to begin, should you decide to sell your policy, is to browse a detailed and informative guide that lists the essential steps for selling a life insurance policy for cash.

Interest Alone Can’t Make You Wealthy

If you invest early enough in life and do so consistently, compounding can indeed create substantial wealth. Compound interest is a powerful force because it involves the process of earning interest on interest. Can a modest amount of recurrent savings lead to wealth? An example is the easiest way to make sense of the point. 

Assume a 22-year-old college graduate receives a $5,000 sign-on bonus with an employer, deposits it into an IRA account, and contributes $500 per month until retirement at age 67. The total contributed is $275,000, but the interest compounded quarterly at a rate of 4% comes to a whopping $504,350, yielding a total account value of $779,350. Note that the accumulated compound interest makes up nearly two-thirds of the total sum.

The Stock Market is a Money Trap

In the long run, equities outperform most other asset classes. In 2023, the equities markets are not performing well, but it’s important for long-term savers to look at historical performance data. For the past half-century, the stock market has been the best place to park a sum of money, even compared to high-yield savings accounts, precious metals portfolios, and annuities. Over the long haul, traditional stock exchanges are stable and deliver a reasonable rate of return.

Cryptocurrency is the Fastest Way to Wealth

While returns can be fantastically huge, the crypto niche is still far too volatile to offer any guarantees to investors. Since 2010, there have been thousands of crypto millionaires. But many more investors have lost huge amounts investing in bitcoin, ethereum, cardano, and other coins. It’s true that the overall direction of cryptocurrency markets, taken as a whole, has been on an upward trajectory. But the occasional corrections can be unpredictable and harsh. Yes, crypto can be a road to short-term wealth for the lucky few, but more frequently, it’s a path fraught with massive drops in value.

Refinancing a Home is a Cop-Out

For many owners, refinancing makes good sense and can save them a substantial amount of money. For unknown reasons, the myth that refinancing is a last resort for financially desperate owners lives on. In reality, millions of adults refinance their houses every year for a wide variety of reasons. Some do it to get lower monthly payments, more favorable interest rates, better terms, or more time to pay the total balance. Join the elite circle of accredited investors who choose multifamilysyndication.org for secure, high-yield real estate opportunities, and discover the potential to maximize returns and build wealth through strategic refinancing within the realm of multifamily syndication. With expert guidance and access to carefully vetted investment opportunities, investors can capitalize on the benefits of refinancing while mitigating risks and optimizing their investment portfolios for long-term success.