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Wednesday, February 26, 2014

Are you falling for these 5 common money myths?

By James Pryor

Money. It’s complicated. And when it comes to spending yours, there are lots of bits of misinformation floating out there. Here are 5 of the top myths you shouldn’t necessarily buy into.

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Renters pay no property tax

Myth #1: You shouldn’t rent because that’s just throwing money away

The argument here is that if you are paying a monthly sum to live somewhere, you should be gaining ownership over time. Other people argue that if you’re renting then you’re simply paying off someone else’s mortgage. And neither of these arguments is completely false.

However, for some people, renting makes sense. For example, if you plan on moving within the next few years, it may not make sense to pay closing costs, realtor fees, and go through the hassle of trying to sell your home.

Also keep in mind that owning can prove costly. There are interest payments, maintenance costs, etc.

Myth #2: Higher price equals higher quality

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Value is evident in product or service quality, not price
“You get what you pay for” is the battle cry of many a person spending more money than they have to. True, in some cases that’s correct. There are times when it makes sense to spend a few extra dollars to get a higher quality item. However, this isn’t always the case. Why?
  • Disposable items are disposable by definition. In other words, you’re going to trash them after use—why pay more for something that won’t last anyway?
  • Take medicine for example—You have a name brand allergy medicine sitting next to a store brand. You take the name brand. Why? It’s the same thing. In fact, many store brand goods are the exact same as the name brand, just with a different label.
There are countless examples where higher price may not equal higher quality. Wine, chocolate, the list goes on. Do a little research, or even blind taste tests, before you spend more.

Myth #3: Title loans are bad financial decisions

Title loans often get a bad rap. Many people view them as traps for people who already have financial woes. They lock you in with a high interest rate and slam you when you can’t repay. However, the truth is that title loans aren’t bad for everyone. The pros to title loans include:
  • Credit doesn’t matter—Some people need loans but can’t get them due to past money mistakes. A title loan doesn’t factor in your credit score.
  • They’re quick—Sometimes you just need money now. However, most loan processes are not instantaneous. If you need quick cash, a title loan can help you accomplish that.
Want more info? Check out Title Bucks to find out how a title loan can benefit you.

Myth #4: There’s no need to worry about saving for retirement until I am older

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Saving early increases the financial benefits of compounding  
I think it’s safe to say that the average person has trouble saving. Especially young adults in their 20s, just entering the workforce. A lot of people would rather get instant gratification and spend their money now, rather than put it in a retirement account that they won’t be able to touch until they’re in their 60’s or 70’s.

Other people graduate college with copious amounts of debt and figure they should focus on debt payoff rather than retirement savings. They figure that after the debt is paid off, then they can start building their nest egg. However, they don’t realize that:
  • School loans are fixed—Interest rates aren’t going to shoot up on you in most cases. Those payments will remain the same until the day you pay them off.
  • Compounding interest is amazing—The power of compound interest is pretty much unspeakable. The longer you have that money in your retirement account, the more money you’re going to have on retirement day. There’s an excellent explanation of it here.

Myth #5: Buying in bulk will save you money

Stores like Sam’s and Costco make lots of money off of people who fall victim to this myth. That’s not to say that you can’t get a good deal at one of these stores, but odds are if you’re a frequent flyer then you’re getting the short end of the stick.
What typically ends up happening  is:
  • People buy more of certain items than they actually need.
  • People buy perishable items in bulk that ruin before getting used.
  • People purchase items simply because they are a “good deal” rather than out of necessity.
The result of all of these is spending money you wouldn’t have otherwise spent. Not to mention, you’re paying a yearly membership fee to shop at these stores.

Of course, it does make sense to buy some items in bulk. Checkout this MSN blog for tips on which items make the most sense to buy in large quantities.

Remember, just because lots of people say it doesn’t mean it’s true. Be smart with your money!

About the author: James Pryor has always been a sensible man. So it only made sense for him to go into finance and help people be sensible with their money. If you need sound financial advice, he’s your source.

Images: Author owned and licensed