What Money Myths That Are Holding You Back From the Life of Your Dreams?
Are you actually holding yourself back from becoming financially prosperous and living the life of your dreams? There are a lot of myths around money and if you are not careful, you could actually be preventing yourself from living better.
Throw away these six money myths, and start stepping onto the path to prosperity.
1. If I get a raise that moves me into a higher tax bracket, I will end up taking home a smaller paycheck.
This is NOT true! Being moved into a higher tax bracket only increases the tax rate on the income you earned in that tax bracket. Here’s how it works: * Filing Singly, 2011:
* 10% on taxable income from $0 to $8,500
* 15% on taxable income over $8,500 to $34,500
* 25% on taxable income over $34,500 to $83,600
* 28% on taxable income over $83,600 to $174,400
* 33% on taxable income over $174,400 to $379,150
* 35% on taxable income over $379,150
So, if you earn $25,000, the first $8,500 is taxed at 10%. Your income earned between $8,500 and $25,000 is taxed at 15%. If you the get up to $35,000, you would only be taxed 25% on any income over $34,500.
2. You have to own a house. Rent money is like throwing money in the garbage.
Again, not true. While it is great to own your own home, it is a long-term investment, not a short-term one, but it is also an illiquid asset-that means you can’t sell it quickly if you need cash. With rent, you can always move out, move somewhere cheaper, and so on.
With a house, there are a lot of hidden costs most people are not even aware of until they are getting ready to sign on the bottom line. By that stage they have gone so far and got their hopes up so much, they will often not back out even when they can see that they can’t afford the house.
Do the math. For the first several years of most mortgages, you are essentially paying only the interest through your payments, not affecting the principle in any way. For example, on a 30-year, $150,000 mortgage at 7% interest, your first 5 years of payments would total approximately $60,000. Of that $60,000, you “throw away” approximately $51,000 on interest payments.
You should also compare renting to other necessities of modern living. Do you consider the money you pay for gas, electricity and food to be the same as throwing it away? These expenses are both examples of consumables without lasting value that you consistently purchase. However, these things are required for daily living in our society if we are to survive. Rent falls under the same heading.
What does NOT fall under the same heading are cable TV bills, satellite radio, expensive gym memberships that you probably do not use, and a lot more. Look at your budget carefully, and don’t resent the rent!
3. Higher price means higher quality.
More expensive items are not always of greater quality. For example, generic drugs are generally regarded to be just as beneficial as their name-brand alternatives.
When determining an item’s value, look beyond the price and examine the true value to you. Does that generic brand pain reliever help your aching back? If it does, then don’t be dazzled by big brands. Go for cheap so you won’t have to go for broke.
4. You need a lot of money to start investing.
Again, this is not true these days if you shop around carefully. While some brokerage companies require a minimum amount of money to open an account, there are also many online brokers now that have no investment requirements, allowing you to get started immediately and snap up some stock bargains in this rollercoaster recession.
5. Keeping a balance on my credit card will help my credit rating.
One of the factors that go into a credit score is the percentage of available credit that is being used (your credit to debt ratio). So, you are actually better off not carrying a balance. That’s not to say you shouldn’t use your card, but be sure to pay it off at the end of each month. Otherwise, you will be throwing money away by paying interest to the credit card companies.
6. Home ownership is a guaranteed investment strategy.
One only needs to look at what has been going on in the housing market in the last couple of years to see that this is not always true, and also look at Myth #2 above. As with other investments, home ownership carries a risk that your investment may decrease in value. Past performance is not an indication of future success. You house value will be determined not only by its condition, but my market forces and the going price on other similar properties, plus supply and demand.
Did you believe any of these financial myths before you read this article? If so, it is time to start thinking more proactively about money. Now that you know the truth, it is time to start looking at spending money ONLY if it makes you money. Learn more about the best ways to save and to invest for the life of your dreams. It’s never too late to get on the path to real wealth once you get rid of your money myths.