By Ambareen Musa
Even the most money 'savvy' people might be making bad decisions based on misinformation, writes Ambareen Musa, CEO and founder of Souqalmal.com
Myths are all around you when it comes to finance. You’ve probably heard them before.
Take this example as a case: You don’t generally invest in the stock market, but you hear from a friend that the market is performing well and decide to pool money into it.
You end up buying high, and selling low when the market tanks; a common emotional response that could result in losses. The debunked myth? A booming stock market assures good results.
If you end up believing myths like these, you’re not alone. Even the most money ‘savvy’ people might be making bad decisions based on misinformation. Continuing to believe such myths would make a serious dent in your finances.
In the write-up that follows, the Souqalmal.com team will be debunking some of the most common money myths doing the rounds.
Myth #1: Invest only in what you know
It’s a common practice for people to put their money into investments that they’re already familiar with. Investing in one fund or one industry would mean you run the risk of a complete wash out of your investments. Never put all your eggs in one basket. It’s always better to diversify your investment portfolio, allowing you to ride out the ups and downs that come with it to your benefit.
Myth #2: Your money is the safest in banks
Well, technically speaking, your money definitely is safer in banks than hiding it in the closet. But the real question is, is it the safest there? When you’re looking at short-term savings, i.e., money you’ll be needing in the course of the next five years, a savings bank account is where you should keep your money in.
But what about your long-term goals? Rather than leaving your money to sit there in a savings account, it’s always better to invest it elsewhere to earn significantly higher returns.
Myth #3: Debt is a wealth building tool
True, debt can help you meet your goals, like buying a car or a home, but it’s also true that it can derail your finances completely. A lot of people are still under the delusion that if you use debt responsibly, there’s no harm.
The reality, however, is that the more debt you acquire, the greater the drain on your financial life as it eventually makes you pay more for everything you buy. It’s best to avoid debt wherever possible.
Myth #4: Your credit card can save you in emergencies
Most people set aside a credit card to use as a cover during an emergency but it could possibly lead to a burdensome debt you struggle to pay off. Remember, a credit card doesn’t represent financial security and believing so could be a huge mistake. Instead of resorting to such measures during an emergency, it’s always better to plan ahead and invest in an emergency fund to help you sail through the rainy days.
Myth #5: A home is always the better investment
When asked to name the one investment option they thought was the safest, most people would say a ‘home’. However, there’s absolutely no guarantee that your home’s value will appreciate considerably over time. When the real estate market plummets, so does the value of your home.
Additional costs such as homeowners insurance, property maintenance fees and repairs are also to be factored in when calculating returns. Before you invest in one, ask yourself if you’re ready to make a long-term financial commitment. If not, explore other investment options such as Stocks and Mutual funds that could end up offering a better pay off.