There are all sorts of untruths out there, ranging from the best way to buy a home to choosing the best investment strategies. In the internet era the potential for misinformation to spread is rife, but fear not citizens… We are here to help you separate fact from fiction.
Table of Contents
One of the Biggest Finance Myths: Uninvested Savings Aren’t Worth Having
Now, everyone has different financial goals and aspirations, and, indeed, a conventional savings account isn’t going to turn your expendable income into millions.
However, there are plenty of scenarios when you’d be better off having liquid assets in a savings account rather than tied into a fixed-period bond or stocks that might be hard to shift:
- Ensuring you can make quick withdrawals if you have an unexpected expense.
- Avoiding allocating all of your available cash to long-term investment.
- Having a contingency budget to utilise if a great opportunity arises.
It’s also worth looking into savings accounts with compound interest – which can quickly add up to a reasonable interest payment, particularly with rising inflation and Bank of England base rates.
A savings account isn’t the same as an investment, and your returns won’t be anywhere close.
BUT your cash will be protected by the FSCS deposit scheme (or alternative in another country), and you can get to it whenever you like.
High-yield savings accounts are an excellent middle ground, often with a favourable interest rate if you give notice before making a withdrawal.
Myth Two: Buying a Home is Always Favourable to Renting
This myth is another that has a seed of truth, eroded over time so that many people make assumptions that aren’t based on fact.
The concept is that if you’re renting, you’re paying the same money every month to a landlord without accumulating any interest in the property – so you may as well use the same cash towards mortgage payments.
One of the obvious problems here is that the cost of purchasing a home involves a great deal more than a comparable monthly payment:
- Saving up for a deposit (usually 5-10% as a minimum).
- Paying council taxes, repair costs, and other management fees.
- Qualifying for a mortgage – not so easy if you have an adverse credit history.
Homeowners won’t see any immediate investment return on a standard repayment mortgage.
The first few years will primarily comprise interest repayments rather than whittling down the capital balance.
Many people benefit from renting a home while they repair their credit score, save up a deposit and pay back other debts, and will get a far better interest rate when they’re in a position to apply for a mortgage.
Myth Three: Aim to Have as Little Debt as Possible
It’s correct that heavy debts and certainly obligations far above your income can make it pretty impossible to apply for any attractive borrowing products – but the reality is that no credit can be as damaging as too much.
Here’s why:
- Credit lenders rely on referencing bureaus and agencies (such as TransUnion, Experian, and Equifax) to determine whether a new applicant is creditworthy.
- Some will make decisions based on the assigned credit score, whereas others will look for defaults, CCJs, late payments and other debt problems.
- If you have never used any credit, your score will be low or non-existent. A lender can’t approve you because they have no proof that you are financially responsible regardless of your other circumstances.
The important footnote here is to ensure you’re accruing ‘good debt’ instead of ‘bad debt’. Good debt is financing you need and handle properly, with on-time repayments – think student loans, education fees, or a mortgage on a home. A more detailed explanation of debt types can be found here.
Having ongoing debt – avoiding very short-term unsecured loans – is a great way to improve your credit score and become eligible for excellent rates, such as credit cards with loyalty programmes to earn air miles.
Myth Four: You Can Only Invest if You Are Wealthy
Investment and fund management might be perceived as reserved for those with considerable wealth. Still, it’s often a great call for a savvy saver looking to make their cash stretch further.
You don’t need to choose high-risk investments or take a massive gamble on crypto, nor do you need thousands to begin investing. Rather, you can invest in quality stocks, mutual funds or a product like an ETF that helps you monitor your returns to base further decisions on.
The key is to assess your risk exposure and select investment products that align with your goals – the riskier the investment, the higher the returns, but the greater the chance you’ll lose everything. Therefore, while investment is available to all, it’s best to start small until you’ve built up some knowledge and confidence.
Conclusion
We’ve barely scratched the surface today when it comes to debunking the biggest finance myths, but the four we discussed above will give you a firm foundation from which to continue being inquiring and critically discerning as you continue your financial enlightenment. Good luck!
Found this article helpful? Awesome! Then, check out the rest of our blog to read more finance-related articles.
