Money Myths Debunked

Social media, the internet, Nigel from down the pub. None fall short when it comes to dishing out ‘advice’ on how to best manage your finances. However, how much of this is actually reliable is a different story altogether. In my most recent Instagram live, I debunked some of the ten most common money myths you might have heard, alongside certified money coach and good friend, Fanny Snaith. You can still watch the replay on my Instagram or YouTube channel but below is a handy breakdown of some of the money myths that we discussed.

Common Money Myths

Myth 1: “I don’t need an emergency fund because I can use my credit card or overdraft.”

Getting into debt should never be the way out of a situation. Debt means paying interest and monthly payments. Both of which hold you back from building wealth.

If you’re working on getting out of debt, having a ‘starter’ or small emergency fund means you can avoid compromising your progress. From a psychological perspective, this is much more effective in ensuring you continue on your debt-free journey. Telling yourself that debt isn’t an option forces you to put money aside, and is the first stage to gaining control and mastering your money.

Myth 2: “Buying a car on finance means I can put my money towards more useful things.”

As one of my followers put it, having a flash car on finance but no assets is not a good look. The presence of monthly payments in your life is, from an emotional perspective, counterproductive to achieving a good money mindset. If you want to get ahead with building wealth, don’t have payments in your life. There isn't a problem with having nice things, you just have to have the money to buy them.

If you are wealthy and have the money sitting aside (i.e. you can more than afford the price outright), financing a car on zero interest prevents your cash from being tied up so you can use it on other wealth-building things. But even then why have debt in your life? If you have to spend the money to buy a car, it will make you think much more carefully about whether you really want and need it.

Myth 3: “I need a credit card to build my credit score.”

The classic money myth. Yes, having a credit card, making regular small whole balance payments on it can improve your credit score, providing you ALWAYS pay it off on time. However, there are plenty of more effective ways. Registering to vote is the biggest way that people often overlook.

Never miss a payment for anything you have on credit. This is a steadfast way to avoid getting a black mark against your name. But aside from this, ask yourself, why do I even care about my credit score? Ultimately, it’s used to assess whether you can be trusted with a loan. It says nothing about your financial wellbeing or level of wealth. If you don’t see debt as an option, then the credit score is really not that big of a deal.

“But what about a mortgage?”

The greatest factors affecting your ability to obtain a mortgage are a consistent income, low outgoings relative to your income, minimum other borrowing, and a sufficient deposit (20%+). Put more focus on these and less on your credit score.

Myth 4: “Pensions are a bad investment.”

As Fanny suggests, investing in ISAs might be your first move because ISAs are not subject to tax like pensions are. An if you qualify for a Lifetime ISA, you’ll also get a 25% bonus on your contribution (max £4,000 net of bonus per tax year). However, Your employer must also pay into your pension, it provides 25% tax-free and the fund value doesn’t count towards means-tested state benefits like Universal Credit. It might be a relatively thankless task now, but investing in your pension does have benefits you will be grateful for in the future.

But what will make the biggest difference in the long run, is what investment return you achieve on your money, whatever type of tax wrapper it is held within. Globally diversified equities have historically generated the highest compounded returns over 25 years or more, but they go up and down a lot along the way. So choose what your money is invested in just as carefully as what type of account (LISA, pension, etc.) you choose to hold the money in.

Myth 5: “Old-style investing is a thing of the past - crypto is the way forward when it comes to building serious wealth.”

No one has any idea what the crypto market will do next. You must know what you are doing before you tie up too much of your money in it. Warren Buffet, widely regarded as the guru of investing, says he can only see it ending in tears. So you might benefit from reminding yourself this: anything which can make you really rich can also make you really poor.

Before focusing your attentions on risky investments like crypto, you’d do much better to make sure you have the basics right. This means you are debt-free, you have a sufficient emergency fund, the money you have coming in is greater than or equal to the money going out and you are regularly saving and investing 15% of household income to make work optional.

Myth 6: “Buying a home on an average wage is impossible.”

Let’s look at the figures. The median income for an individual in the UK sits at around £31,000. The median income for a household is about £37,000. The average house price is £245,500 but, as you are just starting out, you’ll need to buy a property that is below the average price. Let’s say £185,000. And let’s presume you’re going to be putting down a 20% deposit i.e. £37,000. If you saved £1,000 a month by holding down your living costs to the basics and possibly doing some side hustles, you’d have your deposit in around three years.

A £155,000 (to include closing costs) 15 year mortgage at 2.5% interest would cost just over £1,000 per month, the same as you’d been saving for the deposit and be a multiple of just over four times your household income.

The truth is, if you really want to buy a house, you can find a way. But it will have to be one which you can afford. And you’ll have to live frugally and give up all the nice the haves. But bear in mind that buying your dream house might not taste so sweet if you're strung up by high mortgage payments every month. It is generally better to buy than rent in the long run. But especially if you are young, you might be better off renting for a while and using your money to start a business, or improving your skills, and therefore your ability to earn money.

Myth 7: “I don’t need to worry about repaying my credit card because it’s on 0%.”

if it’s on 0%, then what’s the point in NOT paying it off? You have to pay the minimum payment anyway. What’s more, you must take into account the initial fee (2-5%) charged every time you move it and the monthly payments that go on, and on, and on! Credit card companies are not your friend and they don’t have your best interests at heart. They want to make borrowing money as easy and appealing as possible to you. But debt is debt!

Myth 8: “I don’t earn enough to save. “

Ask yourself, is that after you’ve paid for Netflix, Deliveroo, alcohol or cigarettes, or a whole host of other non-essential expenses? Can you cut out some of that fun spending?

And if you can’t or won’t reducing spending ask yourself what can you do to increase your income? You could start a side hustle, sell your unused stuff on eBay, improve your ability to earn by taking an online course, start making parcel or food deliveries. You can even earn cash without moving from your sofa by doing online surveys. Furthermore, if you’re on Working or Child Tax Credits or Universal Credit the government lets you open a Help to Save account and put away between £1 - £50 a month for between 2 to 4 years, to which they will add 50% to whatever you've saved after 2 and 4 years. And you can access the funds before then at any time.

Sometimes you will find yourself in a rut and the prospect of saving that month just isn’t feasible. But there is always next month. It’s always possible to save, you just have to set your mind on it. Putting £10 a month in an account you can’t touch is saving. Even putting a penny in a jar each day is still saving! Get intentional, get into a habit, and change your mindset. Start small and get better later. You ARE a saver.

Myth 9: “As a woman, it is much harder to get rich and build wealth.”

If you want to become a ballerina, a carpenter, or an artist, it takes focus and practice. And wanting to become wealthy is no different. We know that in certain cultures, societies, and regions of the country it is harder for women to get ahead financially. But just because something is challenging, doesn’t mean it is impossible. And despite the challanges there are also lots of wealth building opportunities as Davinia Tomlinson pointed out in the latest episode of my podcast, Real Money Stories. Half the battle is adopting the right mindset that you can and you will build wealth.

Myth 10: “My partner handles all the finances so I don’t need to get involved.”

Everyone needs to take responsibity for their money. If your partner wasn’t around anymore, would you know where your financial records are, what bills need to be paid, where your investments are held?

It’s been proven that couples who manage their money together have a stronger relationship in general. A lot of tension in relationships stems from a lack of alignment when it comes to priorities and values surrounding money. If one person is concerned about the way money is spent and the other sees no problem, naturally, it causes friction. But by opening up and sharing your individual priorities regarding spending and budgeting, you can find a happy medium that you both can agree on. When thinking about money as a couple, it is important to take into account the different backgrounds you had growing up and how that might influence your relationship with money. Check out my earlier blog on this issue. And this is where a money coach such as Fanny might come in handy.

None of this is to say that one person can’t take responsibility for the day to day stuff, but make sure you are aligned on the ‘big picture’ stuff. A healthy dialogue about money and your finances is essential to a lasting relationship.

To Sum Up…

These are just some of the most common money myths Fanny and myself wanted to address and set the record straight. If you want to check out the full video below, we cover all of the above, plus Fanny explains the 8 Money Archetypes (you can take the test to find out which one you are here) and we answer questions from viewers too.

Warm regards,

Jason