As interesting as it may sound, personal finance is interspersed with myths that make it look unwantedly complicated. Undoubtedly, all discussions in personal finance are surrounding “money”. This also explains why so many people are reluctant to discuss this subject despite realizing how a little bit of handholding can help them achieve their financial goals faster.
Most personal finance myths stem from random bits of advice shared on social media handles. Rumours add fuel to the already burning topic of personal finance, thus, giving way to exaggerated concepts that have no base in logic or common sense. Some popular personal finance myths include:
It’s enough to save money in a savings account
Thinking of how money is devalued over the years at the current inflation rate of six per cent, does it make sense to put your earnings in a savings account earning a meagre interest of around four per cent? Savings accounts do not yield much, which is why it makes no sense to keep money saved in a bank account.
Some people argue how keeping money in bank deposits like fixed and recurring deposits has helped them earn good enough returns. However, this tendency to secure money in fixed deposits has also backfired considering how the internal rate of return (IRR) on these deposits post the effect of taxation has only resulted in extremely low returns, thus, deviating many from reaching their financial goals.
You must have enough money to invest
How many times have we heard people saying, “I will start investing as soon as I have enough money”? The definition of “enough” in this context is subjective, as no amount of money is ever deemed enough when it comes to earning or saving. What newly employed people fail to understand is that they must not wait for the money to accumulate before making their first investment.
Investing early is important even if they may be investing as low as ₹100. The myth of saving enough money to invest has caused many people to start late, thus, depriving them of the benefit of the compounding effect on money when invested for a prolonged tenure.
The risk is too big to handle
The quantum of “risk” remains the same, irrespective of whether you invest your money or not. In fact, not investing your money subjects you to a greater risk of not letting your money grow. It is the risk factor that allows money to earn more money. Money begets good money only there is an inherent risk factor involved.
Not many people understand investments. It is the fear of the unknown that refrains them from putting their money into instruments like stocks, equities, debt funds, gold, real estate, and more. Taking necessary risks is important; its quantum defines rewards. Nothing comes for free; you must pay a price for everything. For investments, price is the amount you invest and the risk you are willing to undertake.
Emergency fund is a myth
Emergencies do not come knocking at the door for you to be informed and prepared beforehand. This explains why many people do not set aside enough in emergency savings. Though redeeming fixed deposits is now easy, it does not make sense to allocate the entire emergency fund amount in fixed deposits. Though buying insurance helps secure against sudden events in the future, it does not lessen the importance of planning an emergency fund.
Early retirement is not possible
It is a misnomer that you cannot consider retiring before reaching 60. You must first understand what retirement is and why some people take the plunge of retiring early in life while many others continue to slog their entire lives. Though one may argue that early retirees do not have the burden of familial responsibilities, they fail to realize how early planning of savings and investments has helped them reach their financial goals early in life.
If you are planning to retire early sans the fear of not having saved enough for a post-retirement life, it would do a lot of good if you start investing now.
Personal finance is not “rocket science”. It is a simple understanding of how you must put your money to good use to earn more money from it. Relying on rumours or succumbing to inflated opinions by nincompoops will do no good in the long run.