It’s easy to get confused about how to handle your personal finances. You see and hear commercials for obscure ways to solve all your financial problems—like investing your life-savings in gold or buying a get-out-of-debt-quick program. Or you get well-meaning investment tips from a friend or relative who hasn’t exactly conquered his or her own financial demons, if you know what I mean.
How do you know what financial information to believe and what to completely ignore? Let’s keep it real and break down seven money myths that could trip you up:
Destroying Money Myths
Myth #1 – You can’t earn good interest on bank accounts. I don’t know who created this sad fairy-tale, but it needs to be killed right now. It’s true that most banks offer little or no interest—but you can open up a free online checking account that pays more interest than many CDs these days. Compare the interest rates of free FDIC-insured accounts or view our list of high interest savings accounts.
Myth #2: Online banking and bill pay is dangerous. There’s no guarantee that you won’t ever become the victim of identity theft. However, reducing the amount of paper that comes in and out of your mailbox can dramatically reduce the chances. A dumpster diver can’t nab your e-statements or payments that you make online. Taking a few simple precautions—like using a secured wireless network, keeping your software updated, setting up strong bank account passwords, changing passwords regularly, and monitoring your credit report—adds extra layers of protection.
Myth #3: You need a debt settlement company to eliminate your debt. If you hit a financial rough patch, there’s nothing a debt settlement company can do that you can’t. Direct and honest communication with your creditors may be the best (and cheapest) way to negotiate your way out of debt without obliterating your credit score. Chapter 5 of my new book, Money Girl’s Smart Moves to Grow Rich, gives you smart techniques and tips for dealing with your debt.
Myth #4: The stock market is rigged. Conspiracy theories abound about Wall Street types manipulating the market. The truth is that company insiders and analysts with the most sophisticated technology have always had a leg up on the system—but that doesn’t mean you can’t profit from the stock market, too. A great way for novice investors to reach their long-term financial goals is to buy shares of diversified index funds.
Myth #5: Gold is the only hedge against inflation. Gold is a popular investment to counteract the effects of inflation, but it’s not your only option. Having a diversified portfolio with 5-10% of your money in precious metals—such as gold funds, stocks, or physical bullion—is a good idea. But you can also count on other investments like real estate, stocks, and stock funds to go up when prices rise. It’s also important to note that gold is taxed at a high rate, taking a large bite out of your returns.
Myth #6: A former employer can keep your retirement money. Never turn down the opportunity to participate in a workplace retirement plan, like a 401(k) or 403(b), because you’re afraid you’ll never see your money again if you leave the job. The Employee Retirement Income Security Act (ERISA) sets minimum standards for retirement plans and protects you if an employer mishandles funds—no matter if you leave the company on good or bad terms.
Myth #7: Tax refunds are a great way to save money. When you get a refund from the government, it simply means you overpaid your taxes during the year and the feds got to use it for free. If you like the idea of a forced savings plan, a better idea is to have your pay automatically split between a high-yield savings account or checking account. Submit a revised Form W-4 to your employer so you have Goldilocks withholding that’s not too much, not too little, but just right. Then put those larger paychecks to work by beefing up your emergency fund or contributing more to a retirement account.