We all want to be financially savvy, but the fact of the matter is, many of us pick up money tidbits from friends of friends or entertainment outlets. Information heard through the grapevine leads to misconstrued data or downright lies.
Where do you get your financial information? Have you been set up for long-term success? If you aren't obtaining data from reputable sources, you could have fallen prey to costly money myths.
We're here to help you get back on track by debunking three popular money myths that are running rampant!
Myth #1: You Should Carry a Balance on Your Credit Card
Credit cards are a great way to build up your credit score. So it's important to carry a balance on your credit card to show you're utilizing your lines of credit, right? Wrong!
Credit card balances are where many people get mixed up, and the result could mean throwing money away every month on interest. So let's debunk credit card balance myths so that you can build up your score without having to pay extra fees.
A statement balance and carrying a credit card balance are two different things.
A good credit habit to get into is using less than 20 percent of the credit that is available to you and paying that balance in full every month. That helps your credit utilization rating, which is a major factor in determining your credit score. It shows money lenders that you can responsibly handle money when the time comes for a big loan, like a mortgage.
If you carry a balance by just paying the minimum, you're subjecting yourself to interest. That balance and interest then compound, which means you'll find yourself getting deeper in debt and paying more for it.
So, should you be using credit cards? Sure, but only for purchases you know you can pay off in full at the end of your billing cycle.
Myth #2: "I Don't Make Enough to Save"
We need to get rid of the idea that if we're not saving a thousand dollars every month, then what's the point of saving anything at all?
Every bit helps! It can be as little as $50 a month. What's important is that you're establishing a budget for yourself and are being disciplined with your money. Those are great money-management skills to have. As your income increases, you'll be able to save even more. If there's anything positive we can take away from the COVID-19 pandemic, it's how important it is to have savings to fall back on.
If you're struggling and living paycheck to paycheck (hang in there, you are not alone), don't listen to all the already well-off experts who say you should be saving X amount every month. You know your income; you know your monthly expenses. That means it's up to you to set realistic goals for yourself and revisit those goals every few months or any time there is a change in your finances.
The best way to establish a savings or an emergency fund is to get ahold of your finances. Create a budget, listing out all of your expenses. Then, identify any "extra" spending. Do you have a gym membership you hardly use? A streaming service account that you can downgrade? Excessive spending on take-out food? Most people find at least one or two services they forgot they pay for every month that they can cancel, which means immediate savings. Cancel anything that isn't necessary and put those funds towards your savings.
Without savings or a dedicated emergency fund, you may be forced to fall back on credit cards when times are tight. That means you'll be facing high interest rates, which only makes it harder to stay afloat financially. Your future self will thank you for all the ways you cut back now.
Myth #3: It Doesn't Make Sense to Refinance Twice in the Same Year
Old habits die hard. That's why when discussing a mortgage refinance, many people still say it's only a savvy move if the interest rate is two percent lower or if you haven't already refinanced that year. That may have been true ten years ago, but not in today's market!
An interest rate that is just one percent lower can have a massive payout, and there are no set limits as to how many total times you can refinance your home. Of course, there are closing costs to consider, but many find that the associated costs are well worth the lower interest rate they receive.
Rates are at historic lows and are only continuing to drop. That's why it may be a good idea to refinance even if you did just six months ago. A change in interest could mean hundreds, even thousands, saved over the life of your loan. Rates will, of course, increase as the economy bounces back. That's why if you have a mortgage, it's important to explore your refinancing options before your savings window closes.
There are several mortgage lenders out there, and the best way to secure competitive rates is to do your homework. Comparison shopping helps you get a feel for the current market and gives you negotiating power when it comes time to choose your provider. With help from Lendgo, you can easily connect with lenders who are eager to work with you.
Out with the Myths, In with the Facts
Believing money myths can be very damaging to your financial health, so be sure to take everything you hear with a grain of salt. The best way to acquire new information is to verify it yourself.
If you've been carrying credit card balances, putting off saving, or holding off on a mortgage refinance, it's time to get back on track. The steps you take now and the good money habits you build will help you achieve long-term financial success. Remember, information is power–but only accurate information!